<PAGE>
INCOME EQUITY FUND
CAPITAL APPRECIATION FUND
SPECIAL EQUITY FUND
- ---------------------------------------
ANNUAL REPORT
DECEMBER 31, 1998
- ---------------------------------------
WHERE LEADING MONEY MANAGERS CONVERGE
<PAGE>
MANAGERS INCOME EQUITY FUND
MANAGERS CAPITAL APPRECIATION FUND
MANAGERS SPECIAL EQUITY FUND
ANNUAL REPORT
DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
BEGINS
ON PAGE
-------
<S> <C>
President's Message................................................. 1
The Managers Funds Performance...................................... 3
Complete performance table for all of The Managers
Funds as of December 31, 1998
Investment Manager's Comments....................................... 4
Discussion of investment results during the year and
cumulative total return graphs versus relevant indices
Summary of Industry Weightings...................................... 18
Side by side comparison of the Funds' sector breakdown
Schedules of Portfolio Investments.................................. 19
Detailed portfolio listings by security type and industry
sector, as valued at December 31, 1998
Statements of Assets and Liabilities................................ 32
Fund balance sheets, Net Asset Value (NAV) per share
computation and cumulative undistributed amounts
Statements of Operations............................................ 33
Detail of sources of income, fund expenses, and realized and
unrealized gains (losses) during the year
Statements of Changes in Net Assets................................. 34
Detail of changes in fund assets and distributions to
shareholders for the past two years
Financial Highlights................................................ 36
Historical net asset values, distributions, total returns,
expense ratios, turnover ratios and net assets
Notes to Financial Statements....................................... 39
Accounting and distribution policies, details of agreements
and transactions with fund management and description of
certain investment risks
Report of Independent Accountants................................... 44
</TABLE>
[FN]
Investments in The Managers Funds are not deposits or obligations of, or
guaranteed or endorsed by, any bank. Shares of the funds are not federally
insured by the Federal Deposit Insurance Corp., the Federal Reserve Board, or
any governmental agency.
</FN>
<PAGE>
PRESIDENT'S MESSAGE
- ----------------------------------------------------------------
[PHOTO OF PRESIDENT]
DEAR FELLOW SHAREHOLDER:
The past year will be remembered as one of the most tumultuous years for
financial assets in recent history. While the U.S. economy grew steadily
throughout the year and inflation remained very moderate, several important
events sent financial markets throughout the world on a roller-coaster of
valuation.
Early in the year, despite continued uncertainty about the health of many
emerging economies, U.S. equity and fixed-income markets rose as continued
growth in gross domestic product (GDP) and the reality of low inflation
encouraged investors and consumers. Consumer spending continued to rise
along with personal income, while unemployment reached post-WWII lows. As
might be expected, consumer confidence estimates reached all-time highs.
During the summer, however, the continuing problems in foreign economies
threw a wrench into the works. A 7.7% drop in exports confirmed that the
economic crises in the Far East was having an impact on the U.S. economy,
and raised the possibility that the emerging markets could drag relatively
healthy developed markets, including the U.S., into recession. In mid-
August, Russia devalued its currency by one third and defaulted on much of
its debt to foreign creditors. Long Term Capital Management (LTCM), a hedge
fund consisting of some of the "smartest money" on Wall Street, had to be
bailed out by a consortium of large investment banking institutions after
LTCM's funds lost nearly 90 percent of their value. The Malaysian government
instituted capital controls over its currency, effectively eliminating
further foreign investment. These events set off a vicious cycle that led
to sharp declines of almost all of the world's financial markets. In
addition, U.S. manufacturing activity and construction spending leveled off
and U.S. job growth grew at a slower than expected pace in September. Again,
not surprisingly, consumer confidence fell for three straight months
into September. From their peak in mid-July most foreign and domestic stock
indices fell 20% or more by the end of August. Liquidity in the credit
markets dwindled as dealers and investors attempted to reduce their risk
exposure at all costs, sending corporate bond and all lower credit quality
debt prices lower. The beneficiaries were U.S. Treasury securities along
with a few other countries' government debt which rose dramatically in price
during the period.
In reaction to these events and the market weakness, the Federal Reserve
1
<PAGE>
- --------------------------------------------------------------------------
Board reduced the Federal Funds Rate by one quarter percentage point on
September 29th, and followed that with a surprise reduction in mid-October.
In explaining his decision, Fed Chairman Greenspan told the Senate Budget
Committee that "deteriorating foreign economies and their spillover to
domestic markets have increased the possibility that the slowdown in the
growth of the American economy will be more than sufficient to hold
inflation in check." Several foreign central banks augmented the Fed's move
by reducing their own rates.
The global equity markets celebrated the rate reductions along with some
encouraging corporate earnings news by surging to one of their best
quarterly performances ever. Before the end of the calendar year, the broad
large and medium capitalization indices were hitting all-time highs.
The increased volatility of the financial markets was clear evidence that
the success of the markets depends heavily on the continuation of a near
perfect environment; low inflation, high employment, an extended economic
expansion, strong corporate earnings driven by structural and technological
improvements, and low interest rates. Any threats to this environment will
likely trigger more volatility and dispersion of investment results. Now
more than ever, we believe that past performance is no guarantee of future
results, and that diversification is very important.
This past year was also a successful one for The Managers Funds. Most of
our funds performed within or exceeded our expectations during the year. In
February, we successfully launched a new fund, Managers Emerging Markets
Equity Fund. Although the emerging markets were not a particularly
profitable area of investment in 1998, we believe that there is excellent
opportunity going forward. We made one investment manager change during
the year in Managers Capital Appreciation Fund, which, incidentally, had a
very successful year. Please see page 3 for the performance results of all
of our funds.
I would like to take this opportunity to personally thank Bill Graulty, who
recently retired from the Funds' Board of Trustees, for his many years of
service to our shareholders. Bill has been a Trustee to the Funds since
their inception in 1984. Early in 1999 a proxy vote will be held to elect a
replacement for Bill Graulty. We wish him well in his future endeavors.
As always, should you have any questions about this report, please feel free
to contact us at 1-800-835-3879.
We thank you for your continued investment in The Managers Funds.
Sincerely,
/S/ ROBERT P. WATSON
Robert P. Watson
President
2
<PAGE>
THE MANAGERS FUNDS PERFORMANCE (unaudited)
All periods ending December 31, 1998
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------------------
SINCE INCEPTION MORNINGSTAR
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION DATE RATING**
------ ------- ------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Funds:
Income Equity Fund 11.77% 18.49% 17.68% 14.43% 15.22% Oct. '84 ***
Capital Appreciation
Fund 57.41% 26.34% 21.51% 18.36% 17.77% Jun. '84 ****
Special Equity Fund 0.20% 15.88% 15.35% 16.64% 15.80% Jun. '84 ***
International
Equity Fund 14.54% 12.70% 11.16% 11.62% 14.05% Dec. '85 ****
Emerging Markets
Equity Fund -- -- -- -- (22.60)% Feb. '98 NA
Income Funds:
Short & Intermediate
Bond Fund 5.36% 5.13% 4.23% 7.13% 8.15% Jun. '84 ***
Intermediate
Mortgage Fund 6.08% 5.84% 0.83% 6.72% 7.12% May '86 *
Bond Fund 3.34% 6.19% 7.77% 9.75% 10.73% Jun. '84 ***
Global Bond Fund 19.27% 7.64% -- -- 8.24% Mar. '94 **
Money Market Fund 5.25% 5.36% 4.94% 5.19% 5.83% Jun. '84 NA
</TABLE>
- ---------------------------------------------------------------------------
[FN]
Past performance is no guarantee of future results. Investment returns and
share price will fluctuate. The redemption price of a mutual fund may be more
or less than the purchase price. For additional or more recent information
on any of the Managers Funds, please call The Managers Funds at (800)835-3879,
or your investment adviser. Please read the prospectus carefully before you
invest.
* Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. Returns
are net of fees and may reflect fee waivers or the reimbursement of fund
expenses as described in the prospectus. No adjustment has been
made for taxes payable by shareholders on their reinvested dividends and
capital gain distributions. Returns for periods greater than one year
are annualized.
**Morningstar proprietary ratings reflect risk-adjusted performance through
12/31/98 and are subject to change every month. The ratings are
by asset class and are calculated from the funds' three-, five- and ten-year
returns (with fee adjustments) in excess of 90-day Treasury bill
returns, and a risk factor that reflects fund performance below 90-day
Treasury bill returns. For the three-, five- and ten-year periods,
respectively, each of the Equity Funds other than the International Equity Fund
was rated against 2,821, 1,721 and 751 equity funds, the International
Equity Fund was rated against 872, 417 and 124 international equity funds, and
each of the Income Funds was rated against 1,499, 998 and 378 taxable
fixed-income funds. Ten percent of the funds in each asset class
receive five stars, 22.5% receive 4 stars, 35% receive 3 stars, 22.5%
receive 2 stars and 10% receive 1 star.
</FN>
3
<PAGE>
- --------------------------------------------------------------
MANAGERS INCOME EQUITY FUND
- --------------------------------------------------------------
MANAGERS INCOME EQUITY FUND is an income-oriented stock fund managed by The
Managers Funds, L.P. since its inception in 1984. The Managers Funds
currently utilizes two independent sub-advisors who each manage
approximately half of the total portfolio: Harold Ofstie of Chartwell
Investment Partners, hired in September 1997, and Robert Hoffman of Scudder
Kemper Investments, Inc., hired in August 1991.
THE PORTFOLIO MANAGERS
Harold Ofstie and the investment management team at Chartwell are value-
oriented investors who use relative dividend yields, price/earnings ratios
and price/cash flow ratios of stocks to help identify issues that are
undervalued by the market. They seek to obtain excess returns from the
dividend income stream of the portfolio, the appreciation of stocks from
depressed levels and appreciation of stocks due to growth in earnings.
Because the income stream provides a positive return, and the level of the
dividend provides somewhat of a floor for the price of each stock, the
returns from this type of strategy are intended to be less volatile than the
market in general.
Harold's process is such that he only considers stocks that are yielding
more than the average dividend yield of the S&P 500. He and a team of
analysts and portfolio managers at Chartwell then pare the list of potential
holdings in search of strong balance sheets, ample cash flows and valuation
characteristics which are customized for each industry group, in order to
find the most statistically attractive securities. Fundamental
investigation of the candidates seeks to confirm the statistical findings
and uncover catalysts within each company or the environment which could
potentially improve the earnings and/or stock valuation in the near future.
Catalysts can be in the form of a new product or technology, an acquisition,
divestiture or restructuring, significant management changes, or outside
forces such as industry events, regulatory revisions or changes in demand.
Harold is not a pure contrarian manager likely to initiate a position just
because it is cheap. Instead he will utilize relative strength and earnings
revision models to confirm the efficacy of the catalysts and help optimize
the timing of purchases. Harold's portfolios consist of 40 to 50
securities with the restriction that no sector will have a weighting of more
than two and a half times the weighting of the S&P 500. Each position has a
pre-determined 12-month price target. Stocks are sold when the price
targets are met, if fundamentals deteriorate, or if the prices rise to a
level at which the dividend yield is below that of the S&P 500.
Additionally, stocks may be sold simply to make room for new purchases with
better potential.
Robert Hoffman of Scudder Kemper holds a similar philosophy: stocks with
high relative dividend yields provide above average returns with below
average volatility in the long run.
4
<PAGE>
Hoffman, however, is more of a growth investor who uses relative dividend
yields to identify stocks that are attractively valued and to avoid those
that are overvalued. He seeks to obtain excess returns from the dividend
income stream of the portfolio, appreciation of stocks from depressed levels,
and appreciation of stocks as a result of earnings and dividend growth.
Similar to Chartwell, he invests only in stocks with a yield higher than
that of the S&P 500 (in this case at least a 20% premium is required), and
prefers stocks which have yields which are high relative to their own
historical levels. After screening for yield, Robert and the team of
analysts at Scudder analyze potential holdings in search of strong or
improving fundamentals, earnings, and dividend growth and strong management.
Stocks are sold when the price rises to a point where the yield is more than
25% below that of the S&P 500. In addition, positions are sold if the
fundamentals deteriorate, or merely to provide liquidity for other
purchases.
As a rule, Robert generally stays fully invested with a majority of the
portfolio in domestic common stocks. He will, however, purchase American
Depositary Receipts (ADRs) of foreign companies' stocks and Real Estate
Investment Trusts (REITS). Occasionally, he will invest in preferred stock
or convertible bonds.
THE YEAR IN REVIEW
During 1998, Managers Income Equity Fund provided a total return of 11.8%
compared with a full-year return of 28.6% for the S&P 500.
While a one-year return of 11.8% is in line with the stock market's
historical track record, the Fund's performance relative to its benchmark
was very disappointing. For investment managers who use strict valuation
disciplines, 1998 was an extremely frustrating year. Traditional valuation
methods, which have served well over many years, had no significance for
many of the best performing stocks during the year. This is a classic
example of the difference between "growth" style and "value" style
investing, and 1998 was a year in which the difference in results was much
wider than usual. For example, the S&P/Barra Value Index returned 15% in
1998 compared with a return of more than 42% for the S&P/Barra Growth Index.
The managers' investment style is thus a major contributor to the Fund's
underperformance relative to the S&P 500.
From a sector perspective, the Fund underperformed for two reasons: lack of
technology and a large position in basic materials companies. Although the
basic materials sector appears attractively valued, falling commodity prices
have impeded profitability. The Fund's allocation to basic material stocks
ranged from two to three times that sector's weight in the S&P 500
throughout the year. On average, stocks in this sector declined 5.4 percent
in 1998, and the Fund's basic materials holdings did much worse than this.
Additionally, the Fund had an extremely low allocation to the technology
sector where, as one would expect, relatively few dividends are paid.
Clearly, not owning any of the internet-related companies hurt relative
performance during the year.
5
<PAGE>
The Fund's heaviest sector allocation throughout the past several years has
been in financial companies. Bank stocks in particular have been an
attractive investment due to their relatively low valuations and the premise
that with industry consolidation they were lowering their cost structures,
diversifying their income sources, and thus reducing their financial risks.
These stocks were among the portfolio's worst performers during the third
quarter as the default of Russian debt, news of trading losses in the
emerging markets, and exposure to global hedge funds demonstrated that banks
still had plenty of financial risk. Positions in Chase Manhattan, JP
Morgan, Bankers Trust and Mellon Bank led the third quarter decline and then
rebounded significantly in the fourth quarter.
LOOKING FORWARD
Going forward, the Fund's positioning is not dramatically changed from last
year. The portfolio has a price/earnings ratio which is 33% less than that
of the S&P 500, and a price/book ratio which is less than half that of the
benchmark's. Meanwhile, the portfolio's average five-year earnings growth
rate is 13%, while the benchmark's earnings growth rate is 19%. There is a
possibility that we have entered a "new era" where classic measures of value
are obsolete and new factors become the basis for analysis. We believe,
however, that this is very unlikely. Growth/value cycles such as this are
not uncommon and they often test investors' resolve at the extremes. Both
managers remain committed to the valuation disciplines that they use, and
are confident that they will benefit during a period in which valuations get
called into question.
6
<PAGE>
- -----------------------------------------------------------------------
MANAGERS INCOME EQUITY FUND
Cumulative Total Return Performance
- -----------------------------------------------------------------------
The Managers Income Equity Fund's cumulative total return is based on the
daily change in net asset value (NAV), and assumes that all distributions
were reinvested.
The S&P 500 Index is an unmanaged capitalization weighted indes of 500 commonly
traded stocks designed to measure performance of the broad domestic economy
through changes in the aggregate market value of those stocks. The Index
assumes reinvestment of dividends.
This chart compares a hypothetical $10,000 investment made in Managers Income
Equity Fund on December 31, 1988, to a $10,000 investment made in the S&P 500
for the same period. Past performance is not indicative of future results.
[Line Graph comparing hypothetical $10,000 investment for the past ten years
between the Income Equity Fund and the S&P500 Index]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----- ---- ----- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Equity Fund 10,000 12,224 10,634 13,790 15,168 17,055 17,218 23,133 27,084 34,436 38,488
S&P 500 Index 10,000 13,149 12,732 16,621 17,896 19,684 19,935 27,426 33,724 44,976 57,828
</TABLE>
This table shows the average annual total returns for Managers Income Equity
Fund for the one-year, five-year and ten-year periods through December 31, 1998,
and comparable returns for the S&P 500 Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
ANNUALIZED
----------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
-------- ----------- ---------
<S> <C> <C> <C>
Managers Income Equity Fund 11.8% 17.7% 14.4%
S&P 500 Index 28.6% 24.1% 19.2%
</TABLE>
7
<PAGE>
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MANAGERS CAPITAL APPRECIATION FUND
- ------------------------------------------------------------------------
MANAGERS CAPITAL APPRECIATION FUND is a growth oriented stock fund managed
by The Managers Funds, L.P. since its inception in 1984. The Managers Funds
currently utilizes two independent sub-advisors who each manage
approximately half of the total portfolio. Throughout much of 1998, Frank
Husic of Husic Capital Management served as one of the sub-advisors to the
Fund. In October 1998, for reasons that are discussed below, The Managers
Funds replaced Husic with Kevin Riley of Roxbury Capital Management. Joseph
McNay of Essex Investment Management, has served as the other sub-advisor
since March 1997.
THE PORTFOLIO MANAGERS
Roxbury Capital Management's investment philosophy leads it to focus on
companies with strong competitive positions, which are leaders in their
respective industries and are oriented toward maximizing shareholder value.
The key ingredient for inclusion in the portfolio is sustainable growth in
earnings and cash flow. Thus, the portfolio will tend to be heavily
weighted in companies which have not only demonstrated earnings and cash
flow growth in the recent past, but which can be expected to maintain or
increase their growth rate into the foreseeable future. Valuation is, in
the final analysis, important, however, growth and quality parameters must
first be recognized.
Roxbury uses quantitative screens to identify companies with strong earnings
growth, high returns on invested capital, healthy balance sheets and
positive cash flow. The team of analysts and portfolio managers at Roxbury
perform fundamental analysis on companies which appear attractive based on
the screens. This entails visiting with companies' managements, speaking
with competitors and clients of the companies, analyzing the current and
future market trends where they relate to the businesses and doing an in-
depth analysis of the companies' financial statements. The goal of the
fundamental analysis is to determine whether or not each company's earnings
and cash flow growth is sustainable into the future. Will the market
support the company's growth? Does the company have the appropriate
physical and financial resources? Does the management have a viable business
plan and the ability to execute it? What are the competitors doing?
Particular attention is paid toward businesses with high returns on capital
because these businesses tend to generate significant free cash flow and
offer a high likelihood of sustainability. Analysis of these issues enables
the investment team at Roxbury to estimate the earnings and cash flow
potential of each company.
With these estimates portfolio manager, Kevin Riley, constructs a portfolio
of between 35 and 40 stocks which have the most potential relative to their
valuation. While sector and industry concentration are mostly a result of
the individual stocks selected, Kevin manages the risk of the portfolio by
diversifying across industries and investing in companies which are in
different phases of their business cycle.
8
<PAGE>
Typically, most of Roxbury's portfolio will be invested in large
capitalization "blue chip" companies with predictable businesses and
sustainable earnings and cash flow growth. An additional positive
characteristic of these companies is that they are typically the most liquid
of stocks. Up to 20% of the portfolio may be invested in medium
capitalization companies that have a strong niche or franchise and offer
superior long-term growth potential. In addition, another portion of the
portfolio may be invested in companies that have an unusually strong
reward/risk relationship due to some special circumstances such as corporate
restructuring. Roxbury expects to earn most of its investment return
through the capital appreciation of its holdings as a result of growth in
company earnings.
Kevin will sell a position if and when the price exceeds his expectations
given his estimate of the company's sustainable earnings growth rate. He
may also sell stocks in order to invest in other companies with superior
potential. Most importantly, Kevin will sell a stock if Roxbury's ongoing
fundamental analysis determines that the quality or outlook of the company
is deteriorating in any way.
At Essex Investment Management, Joe McNay's investment philosophy is similar
to Roxbury's in that he focuses on the principle that a company's earnings
growth and profitability will drive its future price performance. He is
thus determined to identify companies which have accelerating, sustainable
earnings growth and the potential for superior revenue growth and margin
expansion. Ideally, Joe searches for companies which have a dominant
product or service and a strong management team. Although he is not a
"value" manager, Joe is value conscious, and seeks investments that he
considers to be under-owned or attractively priced relative to his growth
projections. Companies that meet all these criteria are defined as
"franchise opportunities."
The research and portfolio management teams at Essex generate ideas by
visiting companies, attending conferences and trade shows, as well as
through database screening. Then they develop earnings models and
projections, evaluate balance sheet strengths and weaknesses, and speak with
company managements.
Upon initiating a position, Essex applies risk controls to limit negative
effects. These consist of price targets, individual position limits of 5%
of the portfolio, and a maximum industry exposure limit of 20% of the
portfolio. Companies are sold when Essex perceives a loss of proprietary or
dominant position, an earnings disappointment, excess value versus
forecasted growth, or if there is a better opportunity elsewhere.
The result is that Essex's portfolio is comprised of a blend of large
multinationals with dynamic medium to large industry leaders. The
portfolio's market cap ranges from $1 billion to $100 billion with 50 to 60
companies that display sustainable, high quality earnings growth at
reasonable valuations.
THE YEAR IN REVIEW
Managers Capital Appreciation Fund provided a total return of 57.4% during
1998 while the Standard & Poor's
9
<PAGE>
500 Stock Index (S&P 500) returned 28.6%.
The Fund's excellent performance in 1998 can partly be attributed to actions
taken in late 1997 when stocks of companies with healthy fundamental
attributes were devalued as a result of the economic crisis in the Far East.
Both managers' decision to maintain a heavy position in technology stocks
amidst the panic selling of other investors, along with their move to
increase their holdings in consumer cyclical and communications companies
during the fourth quarter of 1997 paid off in early 1998. The technology,
communications and consumer cyclical sectors were the three largest sectors
represented in the portfolio at the start of the year, and also the three
best performing sectors during the year.
An increase in consumer confidence in the first half of 1998 was confirmed
by an increase in consumer spending which had a direct effect on consumer
cyclical businesses and internet related businesses. As volume and revenue
growth accelerated for certain internet businesses it became clear that on-
line commerce was becoming a permanent, important part of business. In
early June, when mainstream technology and media companies such as Compaq
and NBC announced deals to ally with companies such as Yahoo! and CNET, the
valuations for many internet stocks surged.
The dramatic price increases of some of these companies epitomizes the
difference between growth and value styles of investment analysis. Because
of the very early stage of their development, many internet businesses have
yet to demonstrate positive earnings. Thus, traditional methods of
valuation, such as calculating a price/earnings ratio, have been
ineffective. Value style investors have typically ignored these companies
while growth oriented investors have bid them up in expectation of dramatic
earnings gains in the future. Because these stocks are valued based on very
high expectations, they have become more volatile and inherently more risky.
They do, however continue to have great potential.
After the extremely rewarding first half, stocks traded down sharply during
the 3rd quarter, with price volatility increasing due to continued
uncertainty about the health and stability of the global economy. The
managers took advantage of the volatility to rebalance their portfolios,
adding some high quality positions and trimming others. While marginally
trimming the Fund's core technology holdings in Dell, America
Online and CNET, and eliminating 18 technology positions including Excite
and PeopleSoft, the managers added 14 new names including significant
positions in Yahoo! and Microsoft during the third quarter. Meanwhile, they
increased positions in Compuware, BMC Software and Cisco Systems. Although
they maintained a stable allocation in consumer cyclical stocks during the
third quarter, the managers changed some of the names with the notable
addition of CMGI, an internet content provider. In addition, the managers
doubled the allocation in consumer staples holdings which mostly consisted
of broadcasting companies. Notable positions in Time Warner and Viacom were
increased while new holdings in MediaOne, Comcast and Cablevision Systems
were added. The
10
<PAGE>
funds for these additional holdings came almost entirely from the sale of
financial, transportation and utility holdings.
The Fund's financial holdings performed poorly during the third quarter as
the market devalued almost all financials due to concerns over bad loans to
the emerging markets and excessive exposure to hedge fund investments.
While investments in Travelers (Citigroup), Household International, and
Equitable remained at the end of the third quarter, small allocations in
utilities and airline companies were eliminated.
As of October, both portfolio managers remained very concentrated in
technology and consumer service companies, many of which were involved in
conventional and internet broadcasting. As previously discussed this was
an extremely profitable concentration throughout the year, however, the
similarity between managers was contrary to The Managers Funds' principal
philosophy of combining dissimilar investment managers to achieve both focus
and diversification. As a result, The Managers Funds replaced one of the
sub-advisers, Husic Capital Management, with Roxbury Capital Management,
whose investment philosophy is discussed above. The replacement became
effective October 16, 1998. As expected, the transition resulted in a
considerable increase in market capitalization, somewhat higher growth
characteristics, and an increased allocation to certain economic sectors,
such as finance and health care.
During the fourth quarter the portfolio again provided a robust return as
technology and consumer cyclical stocks rebounded. Internet- related stocks
in particular surged late in the year as many investors anticipated strong
internet commerce during the holiday season. While the portfolio managers
remain optimistic about the future of the internet, they have been diligent
in managing risk by trimming these positions as they have appreciated.
Among the internet- related stocks which most significantly contributed to
the Fund's performance during the year were America Online (AOL), which
returned 585% during the year, Amazon.com, which rose 966%, CNET which rose
80%, and CMGI which rose 131% since its addition to the portfolio in the 3rd
quarter. Despite significant trimming, AOL and CMGI remain among the top
10 holdings of the Fund.
LOOKING FORWARD
The Fund remains heavily invested in technology companies going into the new
year, however, the portfolio is significantly more diversified across other
sectors than it was during most of 1998. Due to the sharp increase in
prices of many of the portfolio's consumer cyclical positions Roxbury has
trimmed those positions while adding healthcare and financial positions.
Meanwhile, Essex has been increasing its exposure in communications
companies. As they did during the previous year, the portfolio managers
continue to avoid energy, utility and transportation companies because these
companies are not showing exceptional growth characteristics. For this same
reason, the portfolio has few holdings in basic materials and capital goods
producers. The table on page 18 displays a full breakdown of the sector
allocation of the Fund.
11
<PAGE>
- ----------------------------------------------------------------------
MANAGERS CAPITAL APPRECIATION FUND
Cumulative Total Return Performance
- ----------------------------------------------------------------------
The Managers Captial Appreciation Fund's cumulative total return is based on
the daily change in net asset value (NAV), and assumes that all distributions
were reinvested.
The S&P 500 Index is an unmanaged capitalization weighted index of 500
commonly traded stocks designed to measure performance of the broad domesic
economy through changes in the aggregate market value of those stocks. The Index
assumes reinvestment of all dividends.
This chart compares a hypothetical $10,000 investment made in Managers
Capital Appreciation Fund on December 31, 1988, to a $10,000 investment made in
the S&P 500 for the same time period. Past performance is not indicative of
future results.
[Line graph comparing hypothetical $10,000 investment for the past ten years
between the Capital Appreciation Fund and the S&P 500 Index]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Managers Capital
Appreciation Fund 10,000 12,105 11,872 15,783 17,463 20,375 20,064 26,764 30,429 34,290 53,975
S&P 500 Index 10,000 13,149 12,732 16,621 17,896 19,684 19,935 27,426 33,724 44,976 57,828
</TABLE>
This table shows the average annual total returns for Managers Captial
Appreciation Fund for the one-year, five-year and ten-year periods through
December 31, 1998, and comparable returns for the S&P 500 Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
ANNUALIZED
----------------------------------
ONE YEAR FIVE YEARS TEN YEARS
-------- --------- --------
<S> <C> <C> <C>
Managers Capital Appreciation Fund 57.4% 21.5% 18.4%
S&P 500 Index 28.6% 24.1% 19.2%
</TABLE>
12
<PAGE>
- ---------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
- ---------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND, managed by The Managers Funds, L.P. since its
inception in 1984, is a growth oriented equity fund which primarily invests
in the stocks of small capitalization companies. The Managers Funds
currently utilizes four independent sub-advisors who each manage separate
portions of the portfolio: Andrew Knuth of Westport Asset Management, who
has been managing a portion of the Fund since December 1985, manages
approximately one third of the total portfolio. Gary Pilgrim of Pilgrim
Baxter & Associates, who has been managing a portion of the Fund since
October 1994, manages approximately one third of the portfolio. Timothy
Ebright of Liberty Investment Management, a division of Goldman Sachs Asset
Management, has been managing a portion of the Fund since December 1985,
manages approximately one fifth of the portfolio. Bob Kern, of Kern Capital
Management, was added as a sub-advisor in September 1997, and manages the
remainder of the Fund.
THE PORTFOLIO MANAGERS
Andy Knuth's investment philosophy entails investing in small capitalization
companies which he perceives as having significant upside potential in
earnings and return on equity over the next twelve to eighteen months.
Although he is investing for growth, Andy will purchase stocks only if they
are selling at or below the market's price/earnings multiple, or below
valuations of other companies in the same industry. Thus, he must discover
and invest in companies very early in their growth cycle.
Implicit in the strategy is that Andy and his partner focus on a small
number of issues, and tend to hold them for a long time. The concentration
and low turnover enable Andy to heavily research and monitor each position.
He is focused on future profits only, and, in fact, prefers to find
businesses which are inherently good but which have gone through a troubling
period. Factors that may improve earnings and investor perceptions include
acquisitions or divestitures, management shake-ups, changes in the business
cycle, or the development of a proprietary product in a strong industry. He
searches, in particular, for companies with good managers who are finding
ways to substantially improve the company.
The result is that Andy will typically have a concentrated portfolio, and
any significant industry concentrations are merely an outcome of bottom up
selection. Because some of the companies in which he invests may not yet
have earnings, the price to trailing earnings ratio may be high, although
the price to forward earnings will be well below average. Andy is a patient
investor, usually turning over less than 20% of his portfolio per year.
Gary Pilgrim, of Pilgrim Baxter & Associates focuses only on companies with
high and accelerating earnings growth. First, he screens for stocks which
are exhibiting at least 20% or greater earnings growth. He then ranks these
stocks using a proprietary quan-
13
<PAGE>
titative ranking system (QRS) which focuses on recent earnings growth,
earnings acceleration, prospective earnings growth and potential for
earnings surprise. A team of analysts at Pilgrim Baxter speak with
managements and analyze the businesses to confirm and refine earnings
expectations, and stocks are purchased and sold based on their relative
rankings.
Typically the portfolio will have an average historical and expected
earnings growth rate of near 50%. Because such a high priority is placed on
high growth, the companies in the portfolio tend to be very visible, and
possess very high price to earnings multiples. While successful growers
move up in price quickly, companies posting disappointing earnings move down
dramatically as well. High multiples also make the prices very sensitive to
industry and economic news and events. The result is a portfolio which
exhibits a high level of price volatility.
In addition, the QRS's focus on short-term periods results in a high amount
of portfolio turnover. This is a necessary circumstance since companies
with high price multiples whose growth is slowing need to be identified and
replaced immediately. Gary typically holds around 80 positions and has an
annual turnover ratio in excess of 200%. His portfolios are also typically
heavily weighted in a few business sectors.
While similar in some respects to Andy Knuth, Tim Ebright, of Liberty
Investment Management searches for a different kind of value and growth.
Tim searches for companies which have very predictable earnings, positive
operational cash flow and a defensible market position, which are selling
for less than the intrinsic value of the business. In addition, Tim prefers
companies in which the managers own a substantial portion of the stock.
Typically, this combination can only be found in companies that have not
been "discovered" by institutional investors, or have been "orphaned" since
their initial public offerings. Companies such as this tend to be very
small, thus, Tim is what many consider a micro-cap manager. That is, he
typically invests only in companies with market capitalizations under $300
million, sometimes far smaller. If his analysis is correct, the portfolio
makes money in one of three ways: First, the company may continue to churn
out steady earnings growth for an indefinite period. Second, the stock may
be discovered by institutional investors and enjoy an expansion of its
valuation. Third, the company may be acquired at or above its intrinsic
value.
Because of the size of the companies, Tim must build a portfolio of close to
100 positions. These stocks tend to be less susceptible to market swings,
and exhibit less price volatility merely because they trade much less than
larger companies. Their added risk is in their lower liquidity.
Bob Kern is one of the pioneers of micro-cap investing, and while similar to
Tim Ebright in his focus on very small companies, Bob directs his efforts
toward finding companies which are succeeding through innovation of new
products or services. Thus, Bob's
14
<PAGE>
portfolio tends to be concentrated in technology, healthcare, consumer goods
and service sectors. Bob seeks to earn returns from the appreciation of
stocks as the companies' products develop and penetrate new markets.
In most cases the analysis of the product and judgements as to its potential
is the most important aspect of the decision to own stock. In all cases,
however, the operational and financial health of the company must be
verified. Bob likes to find companies in which margins will increase with
revenue growth, and which can finance much of their growth from operating
cash flow.
Although valuation is clearly important, Bob is often willing to pay
relatively high multiples where he sees enough growth potential. Bob will
typically hold a portfolio of 60 to 70 stocks with a median market
capitalization of under $200 million.
Risk is a necessary part of investing, and is particularly inherent in
investing in small capitalization companies. In this Fund we have combined
four managers who each specialize in a different types of risk. Andy Knuth
takes on extra specific (or company) risk by concentrating his portfolio in
a small number of stocks. Meanwhile he is trying to decrease price risk by
purchasing undervalued companies. Tim Ebright is taking on added liquidity
risk while decreasing specific and price risks. Gary Pilgrim is taking on
added price risk while lowering specific risk. Bob Kern diversifies
specific risk while taking on price risk and liquidity risk.
THE YEAR IN REVIEW
The Fund returned 0.2% during 1998, compared with a return of -2.3% for the
Russell 2000 Index of small-capitalization stocks. Clearly 1998 was a
difficult period for small-cap stocks relative to larger-caps names, such as
those that comprise the S&P 500. Indeed, small-cap underperformance
relative to large caps has been a familiar theme for investors over the past
several years.
Nearly all of the poor returns for small-cap stocks occurred in the 3rd
quarter of 1998. During that period, both the Russell 2000 and the Special
Equity Fund declined by more than 20 percent. The Fund, meanwhile, had
actually underperformed its benchmark by about 30 basis points through
September before rallying in a strong fourth quarter that brought its full-year
return to nearly 250 basis points ahead of the Index.
With four sub-advisors and a considerable amount of portfolio turnover, it
would be inappropriate to attribute the Fund's relative outperformance over
the course of the year to any one or two factors. Indeed, our analysis
suggests that the performance stemmed from the confluence of a diverse
spectrum of factors, and it is that diversity that makes this Fund so
attractive from a risk/reward standpoint.
Still, a look back does provide some information. For instance, it was
interesting to note that the Fund on average was extremely successful in
investing in the technology sector. On the one hand, the Fund maintained
roughly a 150% relative weighting in this sector throughout the year and it
15
<PAGE>
was the best performing sector in the small-cap universe. Additionally, the
specific tech stocks that the Fund owned performed well, especially in the
fourth quarter when 16 of its tech stocks returned greater than 100%.
Meanwhile, the Fund was prescient in underweighting the basic materials and
energy sectors throughout the year. These two economic sectors have been
under extreme pressure for years now, stemming primarily from global
disinflation.
Not all portfolio decisions worked, though. The Fund's positions in health
care performed extremely poorly. And the Fund did maintain a weighting at
or above the market weight in capital goods stocks, which fell on average by
about 10 percent in the small-cap universe.
LOOKING FORWARD
The general theme among all of our sub-advisors is that valuations for
small-cap relative to large-cap stocks remain extremely attractive. With
earnings growth rates for the large-cap companies slowing to the low-to-mid
single digit range as opportunities for margin expansion dissipates, the
mid-teen growth rates that are visible in the small-cap arena should start
to look more and more attractive.
Tim Ebright's strategy continues to be to "look for free cash generating
companies that grow consistently and predictably outside the radar screens
of institutional investors." As such, his holdings will tend to be
extremely small, with a median market cap below $300 million. His bottom-up
approach to investing also implicitly uses several investment themes (and
the industries that they would lead to): increased security needs (alarm and
guard companies), the aging of the population (health care, personal
services), and expansion of international trade (air freight) among others.
Gary Pilgrim remains confident that reasonably good earnings plus stable
inflation and interest rates provide an attractive backdrop for the growth
companies he invests in. He presently maintains a significant bet in the
technology sector.
Bob Kern remains focused on extremely small but innovative companies. Thus,
over half of his portfolio is invested in the health care and technology
sectors, with his median market cap under $200 million.
Finally, Andy Knuth at Westport has been patient, believing that he has paid
an attractive price for his holdings and will eventually be rewarded.
Presently, his sector bets include a modest overweighting in consumer
staples and a modest underweighting in consumer cyclicals.
16
<PAGE>
- -----------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
Cumulative Total Return Performance
- ----------------------------------------------------------------------------
The Managers Special Equity Fund's cumulative total return is based on the
daily change in net asset value (NAV), and assumes that all distributions
were reinvested.
The Russell 2000 Index is comprised of the smallest 2000 companies in the
Russell 3000 Index, representing approximately 11% of the Russell 3000 total
market capitalization.
The Russell 3000 Index is composed of 3000 large U.S. companies, as determined
by market capitalization. This portfolio of securities represents approximately
98% of the investable U.S. equity market.
This chart compares a hypothetical $10,000 investment made in Managers
Special Equity Fund on December 31, 1988, to a $10,000 investment made in the
Russell 2000 for the same time period. Past performance is not indicative of
future results.
[Line graph comparing hypothetical $10,000 investment for the past ten years
between Managers Special Equity Fund and the Russell 2000 Index]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Managers Special
Equity Fund 10,000 13,276 11,176 16,742 19,443 22,817 22,362 29,951 37,365 46,508 46,601
Russell 2000 10,000 11,624 9,357 13,666 16,182 19,241 18,890 24,263 28,276 34,565 33,783
</TABLE>
This table shows the average annual total returns for Managers Special Equity
Fund for one-year, five-year and ten-year periods through December 31, 1998, and
comparable returns for the Russell 2000 Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
ANNUALIZED
--------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- --------
<S> <C> <C> <C>
Managers Special Equity Fund 0.2% 15.9% 16.6%
Russell 2000 Index (2.3)% 11.9% 13.0%
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------
THE MANAGERS FUNDS
SUMMARY OF INDUSRTY WEIGHTINGS as of December 31, 1998 (unaudited)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS MANAGERS MANAGERS
INCOME CAPITAL SPECIAL
MAJOR SECTORS EQUITY FUND APPRECIATION FUND EQUITY FUND
------------- ----------- ----------------- -----------
<S> <C> <C> <C>
Basic Materials 6.8% 1.8% 1.2%
Capital Goods 8.0 2.3 10.1
Communication Services 10.0 6.7 1.8
Consumer Cyclicals 11.1 10.0 16.7
Consumer Staples 6.9 17.4 10.2
Energy 5.2 - 0.9
Financials 21.6 7.7 10.4
Health Care 16.3 12.2 7.7
Technology 5.3 39.2 28.1
Transportation 1.0 - 5.0
Utilities 7.3 - 1.1
</TABLE>
- ---------------------------------------------------------------------------
TOP TEN HOLDINGS AS OF DECEMBER 31, 1998 (unaudited)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS INCOME MANAGERS CAPITAL MANAGERS SPECIAL
EQUITY FUND APPRECIATION FUND EQUITY FUND
- ------------------------- ----------------------- ----------------
% Fund % Fund % Fund
<S> <C> <S> <C> <S> <C>
Xerox Corp.* 4.4% America Online Inc.* 5.6% Airborne Freight
Bristol-Myers Corp.* 1.6%
Squibb Co.* 4.3% MCI Worldcom Inc. 3.4% Emmis Broadcasting
American Home Corp* 1.5%
Products Corp.* 3.7% Microsoft Shared Medical Systems
Corporation 3.4% Corporation 1.4%
Federal National Mortgage Dell Computer XTRA
Association 3.4% Corp 2.5% Corporation* 1.2%
Pitney Bowes Inc.* 2.9% CMGI, Inc 2.4% Policy Management
Systems Corp.* 1.1%
Frontier Corp. 2.4% CVS Corporation 2.1% Bindley Western
Industries Inc 1.0%
McGraw-Hill
Companies, Inc. 2.2% Cardinal Health Inc 2.1% Orthodontic Centers of
America Inc. 1.0%
Sprint Corp. 2.1% Citigroup Inc 1.9% Pittston Brinks
Group* 1.0%
Baxter International Infinity Broadcasting Uniphase
Inc.* 2.1% Corp. 1.9% Corporation 0.9%
Zeneca Group PLC ADR 2.0% Morgan Stanley
Dean Witter 1.8% Carriage Svcs Inc 0.9%
</TABLE>
[FN]
* Top Ten Holding at December 31, 1997
</FN>
18
<PAGE>
- ----------------------------------------------------------------------------
MANAGERS INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK - 99.5%
BASIC MATERIALS - 6.8%
Akzo Nobel, N.V., Sponsored ADR 7,200 $ 321,300
Allegheny Teledyne, Inc. 26,417 539,897
Bowater, Inc. 7,545 * 312,646
E.I. duPont de Nemours & Co., Inc. 11,225 595,627
Georgia Pacific Corp. 9,300 544,631
Georgia Pacific Corp., Timber Group 16,100 * 383,381
Imperial Chemical Industries PLC,
Sponsored ADR 18,500 * 646,344
Lyondell Petrochemical Co. 29,100 523,800
Oregon Steel Mills, Inc. 17,800 211,375
Weyerhaeuser Co. 12,200 619,913
---------
TOTAL BASIC MATERIALS 4,698,914
---------
CAPITAL GOODS - 8.0%
Caterpillar, Inc. 6,700 308,252
Corning, Inc. 27,100 * 1,219,500
Gencorp, Inc. 35,460 * 884,284
PACCAR, Inc. 5,800 237,075
Parker-Hannifin Corporation 12,800 * 419,200
Pitney Bowes, Inc. 30,730 * 2,030,101
Rockwell International Corp. 9,300 451,631
---------
TOTAL CAPITAL GOODS 5,550,043
---------
COMMUNICATION SERVICE - 10.0%
ALLTEL Corp. 8,600 514,388
AT & T Corp. 4,865 366,091
BCE, Inc. 18,920 717,777
BellSouth Corp. 18,000 897,750
Frontier Corp. 48,845 * 1,660,730
GTE Corp. 13,800 897,000
Sprint Corporation (PCS Group) 4,495 103,947
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATION SERVICE (continued)
Sprint Corp. 17,490 1,471,346
Telesp Participacpoes S.A., Sponsored ADR 13,600 * 300,900
---------
TOTAL COMMUNICATION SERVICE 6,929,929
---------
CONSUMER CYCLICALS - 11.1%
Bell Atlantic Corp. 18,784 995,552
Dana Corp. 20,115 822,201
Ford Motor Co. 14,000 821,625
Goodyear Tire & Rubber Co. 4,000 201,750
Limited Inc., The 40,415 * 1,177,087
May Department Stores Co. 5,300 319,987
McGraw-Hill Companies 15,115 1,539,841
Sears, Roebuck & Co. 6,600 280,500
ServiceMaster Co., The 32,582 * 718,840
True North Communications, Inc. 30,745 826,272
---------
TOTAL CONSUMER CYCLICALS 7,703,655
---------
CONSUMER STAPLES - 6.9%
Avon Products, Inc. 17,200 * 761,100
Flowers Industries, Inc. 52,755 1,262,823
Heinz (H.J.) Co. 20,900 1,183,462
Kimberly-Clark Corp. 7,705 419,923
Unilever NV, N.Y. registered shares 4,000 331,750
Universal Foods Corp. 29,735 * 815,854
---------
TOTAL CONSUMER STAPLES 4,774,912
---------
ENERGY - 5.2%
Amoco Corp. 6,965 420,512
Compagnie Francaise de Petroleum Total,
Sponsored ADR 7,100 353,225
El Paso Energy Corporation 13,375 465,617
Elf Aquitaine, Sponsored ADR 8,541 483,634
Royal Dutch Petroleum Co., NY registered shares 6,700 320,763
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statemets.
</FN>
19
<PAGE>
- -------------------------------------------------------------------------
MANAGERS INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
ENERGY (continued)
Texaco, Inc. 9,800 518,175
USX-Marathon Group 22,305 671,938
YPF Sociedad Anonima, Class D,
Sponsored ADR 14,700 * 410,681
--------
TOTAL ENERGY 3,644,545
--------
FINANCIALS - 21.6%
American General Corp. 13,465 * 1,050,270
Arden Realty, Inc. 14,000 324,625
Bank One Corporation 10,940 558,624
BankAmerica Corp. 12,900 775,612
BankBoston Corp. 18,490 719,954
Bankers Trust New York Corp. 3,700 316,119
Boston Properties, Inc. 10,300 314,150
Chase Manhattan Corp. 6,600 449,213
Compass Bancshares, Inc. 12,490 473,059
Equity Office Properties Trust 12,000 * 288,000
Equity Residential Properties Trust 3,700 149,619
EXEL Ltd., Class A 17,400 * 1,305,000
Federal National Mortgage Association 31,732 2,348,168
First American Corp. 12,030 533,831
First Union Corp. 20,852 1,268,062
Fleet Financial Group, Inc. 12,870 575,128
Hartford Financial Services Group, Inc. 11,465 629,142
KeyCorp 11,400 364,800
Lincoln National Corp. 2,600 212,713
Mellon Bank Corp. 8,290 569,937
ProLogis Trust 15,336 * 318,222
Safeco Corp. 5,200 * 223,275
Starwood Hotels & Resorts Trust 19,420 * 440,591
Summit Bancorp 11,600 506,775
U.S. Bancorp 7,600 269,800
---------
TOTAL FINANCIALS 14,984,689
---------
<CAPTION>
- ------------------------------------------------------------------------
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE - 16.3%
American Home Products Corp. 45,660 $ 2,571,229
Baxter International, Inc. 22,185 1,426,773
Bristol-Myers Squibb Co. 22,260 2,978,666
Glaxo Wellcome PLC, Sponsored ADR 15,170 * 1,054,315
Merck & Co., Inc. 3,180 469,646
Pharmacia & Upjohn, Inc. 9,675 547,847
SmithKline Beecham Unit PLC, Sponsored ADR 12,510 869,445
Zeneca Group PLC, Sponsored ADR 31,040 * 1,392,920
----------
TOTAL HEATLH CARE 11,310,841
----------
TECHNOLOGY - 5.3%
Eastman Kodak Co. 9,065 652,680
Xerox Corp. 25,795 3,043,810
----------
TOTAL TECHNOLOGY 3,696,490
----------
TRANSPORTATION - 1.0%
CSX Corp. 17,400 * 722,100
----------
UTILITIES - 7.3%
Cinergy Corp. 12,000 412,500
Duke Power Co. 7,690 492,641
Enron Corp. 10,930 * 623,693
Illinova Corporation 22,545 563,625
Pacificorp 23,100 486,544
Southern Co. 10,900 316,781
Unicom Corp. 12,000 462,750
Williams Companies, Inc., The 38,600 * 1,203,837
Wisconsin Energy Corp. 15,500 487,281
---------
TOTAL UTILITIES 5,049,652
---------
TOTAL COMMON STOCKS
(cost $56,699,242) 69,065,770
----------
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
20
<PAGE>
- ---------------------------------------------------------------------
MANAGERS INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
SHORT - TERM INVESTMENTS - 4.7%***
JPM Prime Money Market Fund, 4.92% 7,857 $ 7,857
Navigator Securities Lending Prime
Portfolio, 5.24%** 3,229,951 3,229,951
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $3,237,808) 3,237,808
-----------
TOTAL INVESTMENTS - 104.2%
(cost $59,937,050) 72,303,578
OTHER ASSETS, LESS LIABILITIES - (4.2)% (2,912,452)
-----------
Net Assets - 100.0% $69,391,126
-----------
-----------
</TABLE>
[FN]
Note:Based on the cost of investments of $59,965,003 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation and
depreciation was $14,097,959 and $1,759,384, respectively, resulting in net
unrealized appreciation of investments of $12,338,575.
* Some or all of these shares, amounting to $3,144,241, or 4.5% of net
assets, were out on loan to various brokers as of December 31, 1998.
** Collateral received from brokers for securities lending was invested in
this short-term investment.
*** Yield shown for each investment company represents the December 31, 1998
seven-day average yield, which refers to the sum of the previous seven days'
dividends paid, expressed as an annual percentage.
INVESTMENT ABBREVIATIONS:
ADR/GDR:Securities whose value is determined or significantly influenced by
trading on exchanges not located in the United States or Canada. ADR after
the name of a holding stands for American Depositary Receipt, representing
ownership of foreign securities on deposit with a domestic custodian bank; a
GDR (Global Depositary Receipt) is comparable, but foreign securities are held
on deposit in a non-U.S. Bank.
New York registered shares: Shares of foreign companies registered on the New
York Stock Exchange.
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
- ---------------------------------------------------------------------------
MANAGERS CAPITAL APPRECIATION FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK - 97.3%
BASIC MATERIALS - 1.8%
Monsanto Company 32,700 $ 1,553,250
----------
CAPTIAL GOODS - 2.3%
American Power Conversion Corporation* 14,800 715,950
General Electric Company 12,500 1,275,781
----------
TOTAL CAPITAL GOODS 1,991,731
----------
COMMUNICATIONS SERVICE - 6.7%
Global TeleSystems Group, Inc.* 19,800 ** 1,101,375
MCI WorldCom Inc.* 42,100 3,020,675
Qwest Communications International, Inc.* 17,800 888,888
RSL Communications, Ltd.* 31,300 919,437
---------
TOTAL COMMUNICATION SERVICE 5,930,375
---------
CONSUMER CYCLICALS - 10.0%
Amazon.com, Inc.* 3,500 1,124,156
CMGI, Inc.* 19,600 ** 2,087,400
Geocities* 8,800 ** 290,400
Home Depot, Inc. 22,300 1,364,482
Snyder Communications, Inc.* 27,600 931,500
Staples, Inc.* 22,300 974,231
Yahoo! Inc.* 5,000 1,184,375
Rambus Inc.* 8,800 849,200
---------
TOTAL COMSUMER CYCLICALS 8,805,744
---------
CONSUMER STAPLES - 17.4%
Cardinal Health, Inc. 23,850 1,809,618
CBS Corporation 25,800 844,950
Coca Cola Company, The 18,400 1,230,500
Comcast Corp., Class A 6,900 395,888
CVS Corp. 33,900 1,864,500
Gillette Co. 27,200 ** 1,314,100
Infinity Broadcasting Corp.* 62,000 1,697,250
McKesson Corporation 12,900 1,019,906
<CAPTION>
- -------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (continued)
Mediaone Group, Inc.* 8,100 380,700
Procter & Gamble Company, The 6,500 593,531
Starbucks Corporation* 23,600 1,318,650
Time Warner, Inc. 15,400 955,763
Viacom, Inc., Class B* 14,000 1,036,000
Walgreen Co. 15,800 925,288
---------
TOTAL CONSUMER STAPLES 15,386,644
---------
FINANCIALS - 7.7%
American Express Company 12,300 1,257,675
American International Group, Inc. 12,200 ** 1,178,825
Citigroup Inc. 34,300 1,697,850
Federal National Mortgage Association 14,200 1,050,800
Morgan Stanley Dean Witter & Company 22,900 1,625,900
----------
TOTAL FINANCIALS 6,811,050
----------
HEALTH CARE - 12.2%
Biogen, Inc.* 8,300 687,863
Bristol-Myers Squibb Co. 8,600 1,150,787
Eli Lilly and Company 15,900 1,413,112
Forest Laboratories Inc.* 17,700 941,419
Guidant Corporation 8,100 893,025
Medtronic, Inc. 20,100 1,492,425
Pfizer, Inc. 10,400 1,304,550
Schering-Plough Corp. 11,400 629,850
Sepracor Inc.* 8,900 783,756
SmithKline Beecham Unit PLC, Sponsored ADR 10,400 722,800
Warner Lambert Company 9,600 721,800
-----------
TOTAL HEALTH CARE 10,741,387
-----------
TECHNOLOGY - 39.2%
3Com Corp.* 22,500 1,008,281
Amdocs Ltd.* 73,800 1,263,825
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
- ------------------------------------------------------------------------
MANAGERS CAPITAL APPRECIATION FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (continued)
America Online, Inc.* 34,100 4,935,975
Applied Materials, Inc.* 19,600 836,675
At Home Corp., Series A* 9,700 714,163
Broadcom Corporation, Class A* 7,000 842,625
Cisco Systems, Inc.* 10,300 955,969
CNET, Inc.* 9,300 495,225
Compaq Computer Corp. 31,200 1,308,450
Concord Communications, Inc.* 17,200 980,400
Dell Computer Corp.* 29,600 2,166,350
EMC Corp.* 12,400 1,054,000
Equant NV, NY registered shares* 6,900 467,906
Inktomi Corporation* 6,100 792,619
Intel Corp. 9,000 1,066,500
Lexmark International Group, Inc.* 11,500 1,155,750
Lucent Technologies, Inc. 9,000 990,000
Lycos, Inc.* 8,700 482,850
Micron Technology, Inc.* 16,800 849,450
Microsoft Corp.* 21,300 2,951,381
Network Appliance, Inc.* 26,800 1,199,300
Network Associates, Inc.* 17,800 1,180,362
Newbridge Networks Corporation* 29,800 905,175
Oracle Corp.* 19,200 828,000
Siebel Systems, Inc.* 30,300 1,026,412
Sterling Software, Inc.* 21,300 576,431
Texas Instruments, Inc. 13,200 ** 1,129,425
VERITAS Software Corp.* 19,399 1,160,303
Vitesse Semiconductor Corp.* 12,700 577,850
Xilinx, Inc.* 10,200 663,638
---------
TOTAL TECHNOLOGY 34,565,290
---------
TOTAL COMMON STOCKS
(cost $64,482,780) 85,785,471
---------
<CAPTION>
- ----------------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 11.0%
OTHER INVESTMENT COMPANIES - 9.9%****
AIM Liquid Assets Portfolio, 5.10%*** 531,870 531,870
Janus Money Market, 5.29%*** 69,292 69,292
JPM Prime Money Market Fund, 4.92% 3,191,756 3,191,756
Federated Treasury Money Market, 4.75%*** 678,983 678,983
PNC - Temporary Investment Fund, 5.01%*** 880,103 880,103
Navigator Securities Lending Prime
Portfolio, 5.24%*** 3,386,030 3,386,030
----------
TOTAL OTHER INVESTMENT COMPANIES 8,738,034
----------
<CAPTION>
- -----------------------------------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT - 1.1%
State Street Bank & Trust Co., dated
12/31/98, due 01/04/99,
4.450%, total to be received
$ 951,470 (secured by
$ 965,000 FHLBs 5.000%, due 10/27/99
market value $ 973,382),
at cost $ 951,000 951,000
---------
TOTAL SHORT-TERM INVESTMENTS
(cost $9,689,034) 9,689,034
---------
TOTAL INVESTMENTS - 108.3%
(cost $74,171,814) 95,474,505
OTHER ASSETS, LESS LIABILITIES - (8.3)% (7,283,375)
-----------
NET ASSETS - 100.0% $ 88,191,130
-----------
-----------
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
23
<PAGE>
- -------------------------------------------------------------------------
MANAGERS CAPITAL APPRECIATION FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (concluded)
December 31, 1998
- -------------------------------------------------------------------------
[FN]
Note: Based on the cost of investments of $75,122,419 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation and
depreciation was "$20,432,245 and $80,159, respectively, resulting in net
unrealized appreciation of investments of $20,352,086.
* Non-income-producing security.
** Some or all of these shares, amounting to $5,296,220, or 6.0% of net
assets, were out on loan to various brokers as of December 31, 1998.
*** Collateral received from brokers for securities lending was invested in
these short-term investments.
**** Yield shown for each investment company represents the December 31, 1998
seven-day average yield, which refers to the sum of the previous seven days'
dividends paid, expressed as an annual percentage.
INVESTMENT ABBREVIATIONS
ADR: Securities whose value is determined or significantly influenced by
trading on exchanges not located in the United States or Canada. ADR after
the name of a holding stands for American Depositary Receipt, representing
ownership of foreign securities on deposit with a domestic custodian bank.
New York registered shares: Shares of foreign companies registered on the New
York Stock Exchange.
FHLB: Federal Home Loan Bank
The accompanying notes are an integral part of these financial statements.
</FN>
24
<PAGE>
- --------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK - 93.2%
BASIC MATERIALS - 1.2%
Allegheny Teledyne, Inc. 71,539 $ 1,462,078
Bush Boake Allen Inc.* 39,000 1,374,750
Cable Design Technologies Corp.* 105,075 1,943,887
Mail-Well, Inc.* 94,200 ** 1,077,413
NuCo2, Inc.* 93,300 583,125
Rock of Ages Corp., Class A* 103,200 1,419,000
Rogers Corp.* 76,700 2,291,413
Sylvan, Inc.* 110,400 1,642,200
----------
TOTAL BASIC MATERIALS 11,793,866
----------
CAPITAL GOODS - 10.1%
AAR Corp. 259,200 6,188,400
Allied Waste Industries, Inc.* 333,850 ** 7,887,206
AmeriLink Corp.* 104,100 839,306
Anaren Microwave, Inc.* 182,100 3,824,100
Applied Power, Inc., Class A 129,600 4,892,400
ATMI, Inc.* 99,600 2,514,900
Baker, Michael Corp.* 223,000 2,174,250
BHA Group, Inc. 130,470 1,761,345
Blyth Industries, Inc.* 54,249 1,695,281
Casella Waste Systems Inc., Class A* 87,200 3,193,700
Chase Industries, Inc.* 113,700 1,186,744
Checkpoint Systems, Inc.* 309,900 ** 3,835,012
C&D Technologies, Inc. 217,600 5,984,000
DT Industries, Inc. 86,700 1,343,850
Eastern Environmental Services, Inc.* 121,800 3,600,712
Electro Scientific Industries, Inc.* 28,000 1,267,000
Flextronics International* 18,000 1,539,000
Furon Co. 114,800 1,958,775
Jabil Circuit, Inc.* 51,000 3,805,875
JLG Industries, Inc. 388,600 ** 6,071,875
<CAPTION>
- ----------------------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------------------------
CAPITAL GOODS (continued)
Kellstrom Industries, Inc.* 111,700 ** 3,197,412
LSI Industries, Inc. 50,100 1,120,988
Lydall, Inc.* 100,000 1,187,500
Met-Pro Corp. 112,300 1,403,750
Mettler-Toledo International Inc.* 16,300 457,419
Miller Industries, Inc.* 166,000 ** 747,000
Motorcar Parts & Accesories, Inc.* 131,700 1,498,088
OmniAmerica, Inc.* 15,000 472,500
Scotsman Industries, Inc. 76,400 ** 1,570,975
Sensormatic Electronics Corp.* 247,300 ** 1,715,644
Sequa Corp, Class A* 99,600 5,963,550
Superior Services, Inc.* 116,600 2,317,425
Tetra Tech, Inc.* 101,958 2,740,121
URS Corp.* 117,100 2,737,212
Waste Industries, Inc.* 119,000 2,030,438
Wolverine Tube, Inc.* 48,100 1,010,100
World Fuel Services Corp. 68,150 732,613
----------
TOTAL CAPITAL GOODS 96,466,466
----------
COMMUNICATION SERVICE - 1.8%
American Tower Corp., Class A* 217,500 6,429,844
CFW Communications Co. 75,900 1,736,212
IDT Corp.* 92,000 1,408,750
Pacific Gateway Exchange, Inc.* 80,400 3,864,225
Vanguard Cellular Systems, Inc., Class A* 154,000 3,965,500
----------
TOTAL COMMUNICATION SERVICE 17,404,531
----------
CONSUMER CYCLICALS - 16.7%
Aaron Rents, Inc., Class B 110,000 1,663,750
Acxiom Corp.* 35,000 1,085,000
Anchor Gaming* 25,000 1,409,375
AnnTaylor Stores Corp.* 156,000 ** 6,152,250
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
25
<PAGE>
- --------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICALS (continued)
Borg-Warner Security Corp.* 117,000 2,193,750
Brookdale Living Communities, Inc.* 20,800 390,000
Carriage Services, Inc., Class A* 306,100 8,704,719
Children's Comprehensive Services, Inc.* 8,500 113,688
Claire's Stores, Inc. 128,800 2,640,400
Coinmach Laundry Corporation* 149,800 ** 1,928,675
Cone Mills Corp.* 52,900 297,563
Consolidated Stores Corp.* 165,252 ** 3,336,025
Diamond Technology Partner, Inc.* 92,400 1,726,725
Duckwall-ALCO Stores, Inc.* 106,100 1,385,931
Electro Rent Corp.* 140,700 2,233,613
Fingerhut Cos., Inc. 125,000 1,929,688
Freds, Inc., Class A 60,550 900,681
F.Y.I., Inc.* 93,000 2,964,375
Gemstar International Group Ltd.* 45,000 2,573,438
Glacier Water Services, Inc.* 65,300 ** 1,697,800
go2net, Inc.* 51,400 ** 1,850,400
HA-LO Industries, Inc.* 83,600 3,145,450
Handleman Company* 103,900 1,461,094
Hanover Compressor Co.* 126,600 3,252,038
Happy Kids, Inc.* 144,400 1,841,100
Harveys Casino Resorts 75,500 2,090,406
Helen of Troy Ltd.* 125,900 1,841,287
Houghton Mifflin Co. 86,400 4,082,400
Hughes Supply, Inc. 71,050 2,078,212
IMPCO Technologies, Inc.* 147,700 ** 1,957,025
ITT Educational Services, Inc.* 200,000 6,800,000
Lamar Advertising Co., Class A* 98,800 3,680,300
<CAPTION>
- ----------------------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------------------------
CONSUMER CYCLICALS (continued)
Metzler Group, Inc. The* 122,200 5,941,975
Michael Anthony Jewelers, Inc.* 106,300 345,475
M/A/R/C, Inc. 59,300 622,650
MIPS Technologies, Inc.* 74,200 ** 2,369,762
National Media Corp.* 120,200 ** 1,284,637
NOVA Corp.* 154,079 5,344,615
OrthAlliance, Inc., Class A* 157,500 1,732,500
Pameco Corp.* 93,200 1,077,625
Pittston Brink's Group 285,800 9,109,875
Players International, Inc.* 50,500 314,046
Premier Parks, Inc.* 192,200 5,814,050
Protection One, Inc.* 307,300 2,631,256
Rental Service Corp.* 190,700 2,991,606
Rent-Way, Inc.* 78,000 1,896,375
Shop At Home, Inc.* 131,600 962,325
Sunrise Assisted Living, Inc.* 106,900 5,505,350
TeleTech Holdings, Inc.* 550,900 5,509,000
Trans World Entertainment Corp.* 104,700 ** 1,989,300
TJX Companies, Inc. 80,000 ** 2,320,000
United Rentals, Inc.* 162,500 5,382,812
U.S. Vision, Inc.* 253,300 1,899,750
Watsco, Inc. 138,600 2,321,550
Whittman-Hart, Inc.* 66,900 1,852,294
World of Science, Inc.* 211,300 686,725
Xtra Corp. 274,400 11,353,300
----------
TOTAL CONSUMER CYCLICALS 160,666,011
----------
CONSUMER STAPLES - 10.2%
ABM Industries, Inc. 105,600 3,656,400
Adelphia Communications Corporation* 39,000 1,784,250
Applebee's International, Inc. 115,000 2,379,062
Benihana, Inc., Class A* 153,300 1,418,025
CEC Entertainment, Inc.* 67,300 1,867,575
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
26
<PAGE>
- --------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (continued)
Cinar Corporation, Class B* 178,000 4,450,000
CKE Restaurants, Inc. 27,170 799,817
Computer Horizons Corp.* 114,600 3,036,900
Consolidated Graphics, Inc.* 124,100 8,384,506
Cox Radio, Inc., Class A* 106,200 4,486,950
Duane Reade, Inc.* 189,200 ** 7,284,200
Emmis Broadcasting Corp., Class A* 337,300 14,588,225
Foodmaker, Inc.* 171,900 3,792,544
Gaylord Entertainment Co., Class A 131,400 3,958,425
Granite Broadcasting Corp.* 223,700 ** 1,342,200
Gray Communications System, Inc. 67,500 ** 1,236,094
Jones Intercable, Inc., Class A* 126,900 4,520,813
Manpower, Inc. 46,500 1,171,219
Metamor Worldwide, Inc.* 84,600 2,093,850
Metro Networks, Inc.* 30,000 1,275,000
Owens & Minor, Inc. Holding Co. 213,300 ** 3,359,475
P.F. Chang's China Bistro Inc.* 49,600 1,103,600
PSS World Medical, Inc.* 121,775 2,793,214
Renaissance Worldwide, Inc.* 38,700 237,038
Ruby Tuesday, Inc. 222,000 4,717,500
Saga Communications, Inc., Class A* 121,400 2,488,700
Suiza Foods Corp.* 130,420 6,643,269
Volt Information Sciences, Inc.* 69,350 1,564,709
Whole Foods Market, Inc.* 32,200 1,557,675
----------
TOTAL CONSUMER STAPLES 97,991,235
----------
ENERGY - 0.9%
Atwood Oceanics, Inc.* 48,900 831,300
BJ Services Company* 75,000 1,171,875
<CAPTION>
- ----------------------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------------------------
ENERGY (continued)
Berry Petroleum Co., Class A 118,900 1,686,894
Friede Goldman International, Inc.* 116,800 ** 1,328,600
Pride International, Inc.* 159,600 1,127,175
R&B Falcon Corp.* 112,700 859,337
Tosco Corp. 75,000 1,940,625
---------
TOTAL ENERGY 8,945,806
----------
FINANCIALS - 10.4%
Alabama National Bancorporation 64,400 ** 1,714,650
Allied Capital Corp. 340,565 5,896,031
Andover Bancorp, Inc. 98,500 3,349,000
Cash America International, Inc. 287,300 4,363,369
Charter One Financial, Inc. 187,534 5,192,348
Chateau Communities, Inc. 57,729 1,692,181
Concord EFS, Inc.* 152,312 6,454,221
Downey Financial Corp. 278,580 7,086,379
Equity Inns, Inc. 179,800 1,730,575
First Washington Bancorp, Inc. 180,400 4,307,050
Golden State Bancorp, Inc.* 26,400 438,900
Harbor Florida Bancshares, Inc. 224,900 2,516,069
Health Care Property Investors, Inc. 57,400 1,765,050
Healthcare Financial Partners, Inc.* 40,900 1,605,325
Hilb, Rogal & Hamilton Co. 128,000 2,544,000
INSpire Insurance Solutions, Inc.* 60,300 1,100,475
Mercantile Bancorporation, Inc. 62,037 2,861,457
Metris Companies Inc. 39,793 ** 1,984,676
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
27
<PAGE>
- --------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
FINANCIALS (continued)
National Health Investors, Inc. 51,400 1,268,937
National Western Life Insurance Co., Class A* 12,000 1,401,000
Penn Treaty American Corp.* 100,700 ** 2,712,606
Penn-America Group, Inc. 158,350 1,435,047
People's Bank 48,200 1,322,488
RFS Hotel Investors, Inc. 98,900 1,211,525
Riverview Bancorp, Inc. 50,000 612,500
Seacoast Financial Services Corporation* 227,500 2,317,656
Sovran Self Storage, Inc. 65,400 1,643,175
Sterling Financial Corp.* 178,200 3,029,400
Summit Bancorp 71,332 3,116,317
Timberland Bancorp, Inc. 175,000 2,132,812
UST Corp. 320,000 7,520,000
Vermont Financial Services Corp. 200,000 6,650,000
Washington Mutual, Inc. 33,750 ** 1,288,828
Webster Financial Corp. 179,800 ** 4,933,262
----------
TOTAL FINANCIALS 99,197,309
----------
HEALTH CARE - 7.7%
Advocat, Inc.* 189,000 1,051,313
Arthrocare Corporation* 65,100 1,391,512
Bindley Western Industries, Inc. 192,800 9,495,400
Centennial HealthCare Corporation* 135,500 2,083,313
Chemed Corp. 67,800 2,271,300
GelTex Pharmaceuticals, Inc.* 77,400 ** 1,741,500
Genelabs Technologies, Inc.* 457,600 1,244,100
Gilead Sciences, Inc.* 65,400 2,681,400
Hologic, Inc.* 55,000 646,250
Hooper Holmes, Inc. 45,100 1,307,900
Horizon Health Corp.* 126,700 958,169
Jones Pharma Inc. 21,200 772,475
<CAPTION>
- ----------------------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------------------------
HEALTH CARE (continued)
Lunar Corp.* 52,600 506,275
Mariner Post-Acute Network, Inc.* 206,500 ** 942,156
Medicis Pharmaceutical Corporation* 10,000 596,250
National Dentex Corp.* 84,400 1,350,400
Ocular Sciences, Inc.* 117,600 3,145,800
Orthodontic Centers of America, Inc.* 473,700 9,207,544
Parexel International Corp.* 170,200 4,212,450
Perclose, Inc.* 57,700 1,904,100
Pharmaceutical Product Development, Inc.* 92,600 2,783,787
Prime Medical Services, Inc.* 199,100 1,443,475
Protocol Systems, Inc.* 155,400 1,068,375
Quorum Health Group, Inc.* 360,750 4,644,656
Res-Care, Inc.* 137,000 ** 3,373,625
Rural/Metro Corp.* 129,900 1,412,663
Sangstat Medical Corporation* 52,100 ** 1,107,125
Total Renal Care Holdings, Inc.* 97,147 2,871,908
Universal Health Services, Inc., Class B* 102,000 5,291,250
Wesley Jessen VisionCare, Inc.* 88,000 2,436,500
---------
TOTAL HEALTH CARE 73,942,971
----------
TECHNOLOGY - 28.1%
Abacus Direct Corp.* 46,600 2,129,037
Acclaim Entertainment, Inc.* 217,400 ** 2,663,150
Affiliated Computer Services, Inc., Class A* 60,700 2,731,500
Alpha Industries, Inc.* 210,700 7,611,538
Amplicon, Inc. 72,100 1,081,500
ANADIGICS, Inc.* 439,100 5,022,206
ANTEC Corp.* 62,400 1,255,800
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
28
<PAGE>
- --------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (continued)
Applied Micro Circuits Corp.* 82,400 2,791,300
Arch Communications Group, Inc.* 364,500 ** 478,406
Aware, Inc.* 36,900 1,003,219
AXENT Technologies, Inc.* 95,000 2,933,125
BEA Systems, Inc.* 93,500 ** 1,139,531
BindView Development Corp.* 5,300 144,425
CACI International, Inc., Class A* 99,600 1,674,525
CBT Group PLC, Sponsored ADR* 148,000 2,201,500
Celestica, Inc.* 190,500 ** 4,702,969
Centennial Cellular Corp., Class A* 48,750 1,998,750
Check Point Software Techologies Ltd.* 20,000 ** 912,500
Ciber, Inc.* 142,100 3,969,919
Citrix Systems, Inc.* 20,400 1,978,800
Cognizant Technology Solutions* 80,000 2,395,000
Comdial Corp.* 140,600 1,230,250
Computer Management Sciences, Inc.* 58,000 986,000
Concord Communications, Inc.* 18,700 1,065,900
Cotelligent Group, Inc.* 114,800 2,446,675
CSG Systems International, Inc.* 27,700 2,181,375
Cytyc Corp.* 225,300 5,801,475
Davel Communications Inc.* 234,766 4,196,433
Dendrite International, Inc.* 234,000 5,791,500
Documentum, Inc.* 72,000 3,847,500
Emulex Corp.* 64,900 2,466,200
Entrust Technologies Inc.* 55,300 1,299,550
Excel Switching Corp.* 22,000 836,000
FORE Systems, Inc.* 109,400 1,996,550
<CAPTION>
- ----------------------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------------------------
TECHNOLOGY (continued)
Gilat Satellite Networks* 47,100 ** 2,596,388
Henry (Jack) & Associates, Inc. 26,900 1,338,275
IDX Systems Corp.* 86,800 3,819,200
IMRglobal Corporation* 126,850 3,734,147
InterVoice, Inc.* 84,700 2,922,150
Infousa Inc., Class A* 104,000 507,000
Infousa Inc., Class B* 45,700 234,213
International Network Services* 39,600 2,628,450
Inter-Tel, Inc. 129,900 3,036,413
K-Tron International, Inc.* 103,800 1,894,350
Kopin Corp.* 90,500 1,906,156
Lifeline Systems, Inc.* 61,400 1,535,000
Macromedia, Inc.* 50,800 1,704,975
Maxwell Technologies, Inc.* 104,200 4,168,000
MDSI Mobile Solutions, Inc.* 163,400 2,900,350
Medirisk, Inc.* 104,500 502,906
MedQuist, Inc.* 171,000 6,754,500
Metrocall, Inc.* 153,180 ** 689,310
Micrel, Inc.* 83,600 ** 4,598,000
Microchip Technology, Inc.* 117,400 4,329,125
Micromuse Inc.* 42,800 829,250
MindSpring Enterprises, Inc.* 64,400 3,932,425
ModaCAD, Inc.* 47,300 ** 780,450
National Data Corp. 45,200 2,200,675
NeoMagic Corp.* 51,900 1,145,044
Network Appliance, Inc.* 168,200 7,526,950
New Era of Networks, Inc.* 196,800 8,610,000
OrCAD, Inc.* 224,500 1,908,250
Orckit Communications Ltd.* 302,900 ** 4,884,263
Peerless Systems Corp.* 87,800 735,325
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
29
<PAGE>
- --------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (continued)
Peregrine Systems, Inc.* 85,222 3,946,844
Policy Management Systems Corp.* 204,600 10,332,300
Pomeroy Computer Resources, Inc.* 64,000 1,440,000
Power Integrations, Inc.* 38,000 952,375
Progress Software Corp.* 19,900 671,625
Proxim, Inc.* 135,000 3,602,812
PSINet Inc.* 45,000 939,375
Rational Software Corp.* 56,500 1,490,187
REMEC, Inc.* 113,950 2,051,100
Richardson Electronics, Ltd. 51,600 493,425
Richey Electronics, Inc.* 70,800 730,125
Rural Cellular Corp., Class A* 173,500 1,735,000
Semtech Corp* 73,600 2,612,800
Shared Medical Systems Corp. 270,100 13,471,237
Sipex Corp.* 163,600 ** 5,746,450
Technology Solutions Co.* 140,875 1,505,602
Tekelec* 263,100 4,357,594
Tier Technologies, Inc., Class B* 205,400 3,491,800
TranSwitch Corporation* 59,700 2,320,837
TSI International Software, Ltd.* 87,500 4,221,875
Uniphase Corp.* 127,600 8,852,250
Unitrode Corp.* 240,000 4,200,000
VeriSign, Inc.* 35,300 2,087,112
VERITAS Software Corp.* 79,412 ** 4,749,830
Vitesse Semiconductor Corp.* 80,900 3,680,950
Waters Corp.* 75,300 6,569,925
Wind River Systems* 89,300 4,185,938
------------
TOTAL TECHNOLOGY 269,755,016
------------
<CAPTION>
- ----------------------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------------------------
TRANSPORTATION - 5.0%
Air Express International Corp. 246,050 ** 5,351,587
Airborne Freight Corp. 418,200 ** 15,081,337
American Classic Voyages Co.* 134,600 2,288,200
Circle International Group, Inc. 237,300 4,805,325
CNF Transportation, Inc. 68,100 2,558,006
Coach USA, Inc.* 42,200 1,463,813
Fritz Companies, Inc.* 293,600 ** 3,156,200
Iron Mountain, Inc.* 89,250 3,168,375
MotivePower Industries, Inc.* 175,200 5,639,250
Pittston Burlington Corp. 106,900 ** 1,189,263
Sea Containers, Ltd., Class A 107,000 3,203,313
Sea Containers, Ltd., Class B* 13,890 412,359
----------
TOTAL TRANSPORTATION 48,317,028
----------
UTILITIES - 1.1%
Calpine Corporation* 110,700 2,795,175
El Paso Electric Co.* 808,900 7,077,875
KTI, Inc.* 31,700 685,513
-----------
TOTAL UTILITIES 10,558,563
-----------
TOTAL COMMON STOCKS
(cost $718,859,445) 895,038,802
-----------
SHORT-TERM INVESTMENTS - 11.3%
OTHER INVESTMENT COMPANIES - 7.2%****
Calvert Cash Reserves Institutional
Prime Fund, 5.26% 14,848,370 14,848,370
CitiFunds Institutional Liquid
Reserves, 5.08% 17,753,962 17,753,962
JPM Prime Money Market Fund, 4.92% 572,534 572,534
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
30
<PAGE>
- --------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
OTHER INVESTMENT COMPANIES (continued)
Navigator Securities Lending
Prime Portfolio, 5.24%*** 36,014,544 $ 36,014,544
----------
TOTAL OTHER INVESTMENT COMPANIIES 69,189,410
----------
<CAPTION>
- ------------------------------------------------------------------------
PRINCIPAL AMOUNT
- ------------------------------------------------------------------------
COMMERCIAL PAPER - 4.1%
Clipper, 5.54%, 01/05/99 $39,000,000 38,971,069
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $108,160,479) 108,160,479
-----------
TOTAL INVESTMENTS - 104.5%
(cost $827,019,924) 1,003,199,281
OTHER ASSETS, LESS LIABILITIES - (4.5)% (43,260,296)
-----------
NET ASSETS - 100.0% $959,938,985
-----------
-----------
</TABLE>
[FN]
Note: Based on the cost of investments of $828,956,688 for federal income
tax purposes at December 31, 1998, the aggregate gross unrealized
appreciation and depreciation was $228,678,822 and $54,436,229,
respectively, resulting in net unrealized appreciation of investments of
$174,242,593.
* Non-income-producing security.
** Some or all of these shares, amounting to $34,581,721, or 3.6 % of net
assets, were out on loan to various brokers as of December 31, 1998.
*** Collateral received from brokers for securities lending was invested in
this short-term investment.
**** Yield shown for each investment company represents the December 31,
1998 seven-day average yield, which refers to the sum of the previous
seven days' dividends paid, expressed as an annual percentage.
Investment Abbreviations:
ADR: Securities whose value is determined or significantly influenced by
trading on exchanges not located in the United States or Canada. ADR
after the name of a holding stands for American Depositary Receipt,
representing ownership of foreign securities on deposit with a domestic
custodian bank.
The accompanying notes are an integral part of these financial statements.
</FN>
31
<PAGE>
- --------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS MANAGERS MANAGERS
INCOME CAPITAL SPECIAL
EQUITY APPRECIATION EQUITY
FUND FUND FUND
------- ----------- -------
<S> <C> <C> <C>
ASSETS:
Investments at value* $ 72,303,578 $ 95,474,505 $ 1,003,199,281
Cash 298,502 5,266 3,471
Receivable for
investments sold 181,688 502,483 2,342,972
Receivable for
Fund shares sold 209,095 1,115,128 13,163,470
Dividends, interest and
other receivables 104,972 12,235 330,788
Prepaid expenses 12,399 16,829 75,172
------------ -------------- --------------
Total assets 73,110,234 97,126,446 1,019,115,154
------------ -------------- --------------
LIABILITIES:
Payable for Fund shares
repurchased 22,233 267,973 7,434,767
Payable upon return of
securities loaned 3,229,951 5,546,278 36,014,544
Payable for investments
purchased 371,246 3,012,056 14,650,929
Accrued expenses:
Investment advisory and
management fees 43,408 53,054 689,067
Administrative fees 14,469 16,579 191,407
Other 37,801 39,376 195,455
----------- ----------- -------------
Total liabilities 3,719,108 8,935,316 59,176,169
----------- ----------- -------------
NET ASSETS $ 69,391,126 $ 88,191,130 $ 959,938,985
----------- ----------- -------------
----------- ---------- -------------
Shares outstanding 2,262,452 2,610,432 15,676,420
----------- ---------- -----------
----------- --------- -----------
Net asset value, offering
and redemption
price per share $30.67 $33.78 $61.23
------ -------- ------
------ -------- ------
NET ASSETS REPRESENT:
Paid-in capital $ 57,297,939 $ 66,232,122 $ 809,313,585
Undistributed net
investment income (loss) 21,353 -- 143,444
Accumulated net realized gain
(loss) from investments (294,694) 656,317 (25,697,401)
Net unrealized appreciation
of investments 12,366,528 21,302,691 176,179,357
------------ ------------ -------------
NET ASSETS $ 69,391,126 $ 88,191,130 $ 959,938,985
------------ ----------- -------------
------------ ---------- -------------
* Investments at cost $ 59,937,050 $ 74,171,814 $ 827,019,924
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
32
<PAGE>
- --------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS MANAGERS MANAGERS
INCOME CAPITAL SPECIAL
EQUITY APPRECIATION EQUITY
FUND FUND FUND
-------- ----------- ---------
<S> <C> <C> <C>
INVESTMENTS INCOME:
Dividend income $ 1,662,260 $ 154,100 $ 4,329,690
Interest income 94,897 117,746 4,524,928
Foreign withholding tax (20,298) -- --
Securities lending fees 6,484 92,566 237,746
--------- -------- ---------
Total investment income 1,743,343 364,412 9,092,364
--------- -------- ----------
EXPENSES:
Investment advisory and
management fees 513,862 590,610 7,575,758
Administrative fees 171,288 184,566 2,104,377
Transfer agent fees 87,139 77,680 830,072
Custodian fees 67,796 65,876 404,639
Audit fees 29,125 32,004 55,939
Registration fees 16,270 18,957 85,540
Insurance 5,882 9,546 46,530
Trustee fees 1,921 3,369 24,762
Legal fees 2,502 2,694 31,866
Miscellaneous expenses 10,229 15,893 120,800
--------- -------- ----------
Total expenses before
reduction 906,014 1,001,195 11,280,283
Expense reductions (28,694) (45,898) (32,880)
-------- --------- ----------
Net expenses 877,320 955,297 11,247,403
-------- --------- ----------
Net investment income (loss) 866,023 (590,885) (2,155,039)
-------- --------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on
investment transactions 4,967,355 19,561,648 (23,605,905)
Net unrealized appreciation
of investments 1,379,664 11,585,959 31,926,270
----------- ---------- ----------
Net realized and
unrealized gain 6,347,019 31,147,607 8,320,365
----------- ---------- ---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 7,213,042 $ 30,556,722 $ 6,165,326
----------- ------------ ---------
----------- ------------ ---------
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
33
- -----------------------------------------------------------------------
THTE MANAGERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS INCOME EQUITY FUND
---------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) $ 866,023 $ 1,223,052
Net realized gain (loss)
on investments 4,967,355 13,070,991
Net unrealized appreciation
(depreciation) of investments 1,379,664 595,116
--------- --------
Net increase in net assets
resulting from operations 7,213,042 14,889,159
--------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (865,105) (1,253,740)
From net realized gain on
Investments (7,385,826) (11,843,315)
---------- -----------
Total distributions to
shareholders (8,250,931) (13,097,055)
----------- ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 23,758,769 35,568,276
Net asset value of shares issued
in connection with reinvestment
of dividends and distributions 7,479,697 11,483,738
Cost of shares repurchased (25,755,736) (36,960,862)
------------ ------------
Net increase (decrease) from
capital share transactions 5,482,730 10,091,152
--------- ----------
Total increase (decrease) in
net assets 4,444,841 11,883,256
NET ASSETS:
Beginning of year 64,946,285 53,063,029
---------- ----------
End of year $ 69,391,126 $ 64,946,285
---------- ----------
---------- ----------
End of year undistributed
(overdistributed)
net investment income $ 21,353 $ 24,259
----------- ---------
----------- ---------
- --------------------------------------------------------------------------
SHARE TRANSACTIONS:
Sale of shares 729,152 1,061,260
Shares issued in connection with
reinvestment of dividends
and distributions 244,946 374,916
Shares repurchased (802,321) (1,085,631)
--------- -----------
Net increase (decrease) in shares 171,777 350,545
------- --------
------- --------
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
34
- -------------------------------------------------------------------
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS CAPITAL APPRECIATION FUND MANAGERS SPECIAL EQUITY FUND
---------------------------------- ---------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- ----------------- -----------------
<C> <C> <C> <C>
$ (590,885) $ (450,934) $ (2,155,039) $ 833,322
19,561,648 13,435,680 (23,605,905) 17,630,807
11,585,959 (1,801,245) 31,926,270 98,018,318
---------- ----------- ---------- ----------
30,556,722 11,183,501 6,165,326 116,482,447
---------- ---------- --------- -----------
-- -- -- (788,086)
(10,197,107) (12,541,907) (1,103,588) (23,238,043)
---------- ---------- ---------- ----------
(10,197,107) (12,541,907) (1,103,588) (24,026,129)
---------- ------------ ---------- ------------
110,123,436 81,018,263 962,148,890 594,941,899
9,382,893 11,559,522 933,968 20,172,338
(125,534,506) (118,641,988) (727,912,988) (259,296,392)
---------- ----------- ------------- ------------
(6,028,177) (26,064,203) 235,169,870 355,817,845
---------- ----------- ----------- ------------
14,331,438 (27,422,609) 240,231,608 448,274,163
73,859,692 101,282,301 719,707,377 271,433,214
---------- ----------- ----------- -----------
$ 88,191,130 $ 73,859,692 $ 959,938,985 $ 719,707,377
----------- ---------- ---------- ----------
---------- ---------- ---------- ----------
-- -- $ 143,444 $ 75,296
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
- ---------------------------------------------------------------------------
3,635,252 2,797,323 16,300,224 10,692,536
275,562 506,041 15,795 344,679
(4,347,025) (4,101,797) (12,403,122) (4,601,047)
---------- ---------- ------------ -----------
(436,211) (798,433) 3,912,897 6,436,168
--------- --------- ---------- -----------
--------- --------- ---------- -----------
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
35
<PAGE>
- --------------------------------------------------------------------------
MANAGERS INCOME EQUITY FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout the year
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
of Year $31.06 $30.49 $28.43 $24.90 $27.89
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.41 0.67 0.76 0.87 0.80
Net realized and unrealized
gain (loss)
on investments 3.10 7.27 3.97 7.47 (0.50)
------- ------ ------- ------- ------
Total from investment
operations 3.51 7.94 4.73 8.34 0.30
------- ------- ------- ------- ------
LESS DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.41) (0.69) (0.76) (0.86) (0.83)
Net realized gain on
investments (3.49) (6.68) (1.91) (3.95) (2.46)
------- ------ -------- ------ ------
Total distributions to
shareholders (3.90) (7.37) (2.67) (4.81) (3.29)
------ ------ ------ ------ -------
NET ASSET VALUE,
END OF YEAR
$30.67 $31.06 $30.49 $28.43 $24.90
------- ------ ------ ------- ------
------- ------ ------ ------- ------
- -----------------------------------------------------------------------------
Total Return 11.77% 27.19% 17.08% 34.36% 0.99%
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Ratio of net expenses to
average net assets 1.28%(a) 1.32%(a) 1.44%(a) 1.45% 1.33%
Ratio of net investment
income to average
net assets 1.26% 1.97% 2.63% 2.85% 3.06%
Portfolio turnover 84% 96% 33% 36% 46%
Net assets at end of year
(000's omitted) $69,391 $64,946 $53,063 $37,807 $48,875
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
[FN]
(a) The Fund has entered into an arrangement with one or more third-party
broker-dealer(s) who have paid a portion of the Fund's expenses. In
addition, the Fund has received credits against its custodian expense for
uninvested overnight cash balances. Absent these expense reductions, the
ratio of expenses to average net assets for the years ended December 31,
1998, 1997 and 1996 would have been 1.32%, 1.35% and 1.44%, respectively.
(See Note 1c of Notes to Financial Statements.)
</FN>
36
<PAGE>
- ---------------------------------------------------------------------
MANAGERS CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $24.24 $26.34 $27.14 $23.25 $25.17
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(loss) (0.23) (0.13)(a) 0.09 0.09 0.12
Net realized and unrealized
gain(loss)
on investments 14.18 3.15 3.66 7.62 (0.49)
------ ------ ------- ------- -------
Total from investment
operations 13.95 3.02 3.75 7.71 (0.37)
------ ------ ------- ------- -------
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income --- --- (0.10) (0.08) (0.12)
From net realized gain
on investments (4.41) (5.12) (4.45) (3.74) (1.39)
In excess of net realized gain
on investments --- --- --- --- (0.04)
------- ------ ------- ------- -------
Total distributions
to shareholders (4.41) (5.12) (4.55) (3.82) (1.55)
------- ------ ------- ------- -------
NET ASSET VALUE,
END OF YEAR $33.78 $24.24 $26.34 $27.14 $23.25
------ ------ ------ ------ ------
------ ------ ------ ------ ------
- -----------------------------------------------------------------------------
Total Return 57.41% 12.74% 13.73% 33.39% (1.50)%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Ratio of net expenses to
average net assets 1.29%(b) 1.26%(b) 1.33%(b) 1.36% 1.29%
Ratio of net investment
income(loss) to average
net assets (0.80)% (0.45)% 0.34% 0.31% 0.53%
Portfolio turnover 252% 235% 172% 134% 122%
Net assets at end of year
(000's omitted) $88,191 $73,860 $101,282 $83,353 $86,042
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
[FN]
(a) Calculated using the average shares outstanding during the year.
(b) The Fund has entered into an arrangement with one or more third-party
broker-dealer(s) who have paid a portion of the Fund's expenses. In
addition, the Fund has received credits against its custodian expense for
uninvested overnight cash balances. Absent these expense reductions, the
ratio of expenses to average net assets for the years ended December 31,
1998, 1997 and 1996 would have been 1.36%, 1.32% and 1.38%, respectively.
(See Note 1c of Notes to Financial Statements.)
</FN>
37
<PAGE>
- ----------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $61.18 $50.95 $43.34 $36.79 $38.90
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.14) 0.08 (0.00) (0.07)(a) (0.01)
Net realized and unrealized
gain (loss) on investments 0.26 12.29 10.68 12.28 (0.76)
---- ----- ------ ----- -----
Total from investment
operations 0.12 12.37 10.68 12.21 (0.77)
---- ----- ----- ----- ------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income --- (0.07) --- --- ---
Net realized gain
on investments (0.07) (2.07) (3.07) (5.66) (1.34)
----- ----- ------ ----- ------
Total distributions to
shareholders (0.07) (2.14) (3.07) (5.66) (1.34)
----- ----- ------ ------ ------
NET ASSET VALUE,
END OF YEAR $61.23 $61.18 $50.95 $43.34 $36.79
------ ------ ------ ------ ------
------ ------ ------ ------ ------
- -----------------------------------------------------------------------------
Total Return 0.20% 24.45% 24.75% 33.94% (1.99)%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Ratio of net expenses to
average net assets 1.34%(b) 1.35%(b) 1.43% 1.44% 1.37%
Ratio of net investment income
(loss) to average net assets (0.26)% 0.17% (0.10)% (0.16)% (0.06)%
Portfolio turnover 64% 49% 56% 65% 66%
Net assets at end of year
(000's omitted) $959,939 $719,707 $271,433 $118,362 $111,584
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<FN>
(a) Calculated using the average shares outstanding during the year.
(b) The Fund has entered into an arrangement with one or more third-party
broker-dealer(s) who have paid a portion of the Fund's expenses. In
addition, the Fund has received credits against its custodian expense for
uninvested overnight cash balances. Absent these expense reductions, the
ratio of expenses to average net assets for the years ended December 31,
1998 and December 31, 1997 would have been 1.34% and 1.36%, respectively.
(See Note 1c of Notes to Financial Statements).
</FN>
38
<PAGE>
- ----------------------------------------------------------------------------
THE MANAGERS FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- ----------------------------------------------------------------------------
(1) SUMMAREY OF SIGNIFICANT ACCOUNTING POLICIES
The Managers Funds (the Trust) is a no-load, open-end, management
investment company, organized as a Massachusetts business trust, and
registered under the Investment Company Act of 1940, as amended (the 1940
Act). Currently the Trust is comprised of 10 investment series. Included
in this report are Managers Income Equity Fund (Income Equity), Managers
Capital Appreciation Fund (Capital Appreciation) and Managers Special
Equity Fund (Special Equity), collectively the Funds.
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles which require management to make estimates
and assumptions that affect the reported amount of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during
the reporting periods. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements:
(A) VALUATION OF INVESTMENTS
Equity securities traded on a domestic or international securities exchange
are valued at the last quoted sales price, or, lacking any sales, on the
basis of the last quoted bid price. Over-the-counter securities for which
market quotations are readily available are valued at the last quoted bid
price. Fixed income securities are valued based on valuations furnished by
independent pricing services that utilize matrix systems which reflect such
factors as security prices, yields, maturities, and ratings, and are
supplemented by dealer and exchange quotations. Short-term investments,
having a remaining maturity of 60 days or less, are valued at amortized cost
which approximates market. Securities for which market quotations are not
readily available are valued at fair value, as determined in good faith and
pursuant to procedures adopted by the Board of Trustees.
(B) SECURITY TRANSACTIONS
Security transactions are accounted for as of trade date. Gains and losses
on securities sold are determined on the basis of identified cost.
(C) INVESTMENT INCOME AND EXPENSES
Dividend income is recorded on the ex-dividend date, except certain
dividends from foreign securities where the ex-dividend date may have passed
are recorded as soon as the Trust is informed of the ex-dividend date.
Dividend income on foreign securities is recorded net of withholding tax.
Interest income is recorded on the accrual basis and includes amortization
of discounts and premiums when
39
<PAGE>
- ----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- ---------------------------------------------------------------------------
required for federal income tax purposes. Non-cash dividends included in
dividend income, if any, are reported at the fair market value of the
securities received. Other income and expenses are recorded on an accrual
basis. Expenses which cannot be directly attributed to a particular fund are
apportioned among the funds in the Trust based upon their average net assets.
The Funds each had certain portfolio trades directed to various brokers who
paid a portion of such Fund's expenses. For the year ended December 31,
1998, the custody expense for the Income Equity, Capital Appreciation and
Special Equity Funds' were reduced by $27,473, 30,383 and $14,685,
respectively, under these arrangements.
In addition, each of the Funds has a balance credit arrangement with the
custodian bank whereby each Fund is credited with an interest factor equal
to 0.75% of the nightly Fed Funds rate for account balances left uninvested
overnight. These credits serve to reduce custody expenses that would
otherwise be charged to the Funds. For the year ended December 31, 1998,
the Income Equity, Capital Appreciation and Special Equity Funds' custody
expenses were reduced by $1,221, $15,515 and $18,195, respectively, under
these arrangements.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends resulting from net investment income, if any, normally will be
declared and paid monthly for Income Equity and annually for Capital
Appreciation and Special Equity. Distributions of capital gains, if any,
will be made on an annual basis and when required for federal excise tax
purposes. Income and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for losses deferred due to wash sales and equalization accounting
for tax purposes. Permanent book and tax basis differences, if any, relating
to shareholder distributions will result in reclassifications to paid-in
capital.
(E) REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements provided that the value of
the underlying collateral, including accrued interest, will be equal to or
exceed the value of the repurchase agreement during the term of the
agreement. The underlying collateral for all repurchase agreements is held
in safekeeping by the Fund's custodian or at the Federal Reserve Bank.
If the seller defaults and the value of the collateral declines, or if
bankruptcy proceedings commence with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
(F) FEDERAL TAXES
Each Fund intends to comply with the requirements under Subchapter M of the
Internal Revenue Code of 1986,
40
<PAGE>
- --------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------
as amended, and to distribute substantially all of its taxable income and
gains to its shareholders and to meet certain diversification and income
requirements with respect to investment companies. Therefore, no provision
for federal income or excise tax is included in the accompanying financial
statements.
(G) CAPITAL STOCK
The Trust's Declaration of Trust authorizes for each series the issuance of
an unlimited number of shares of beneficial interest, without par value.
Each Fund records sales and repurchases of its capital stock on the trade
date. Dividends and distributions to shareholders are recorded on the ex-
dividend date.
At December 31, 1998, certain unaffiliated shareholders, including omnibus
accounts, individually held greater than 10% of the outstanding shares of
the following Funds: Income Equity- 3 collectively own 48%; Capital
Appreciation- 1 owns 12%; and Special Equity- 1 owns 35%.
(H) FOREIGN CURRENCY TRANSLATION
The books and records of the Funds are maintained in U.S. dollars. The value
of investments, assets and liabilities denominated in currencies other than
U.S. dollars are translated into U.S. dollars based upon current foreign
exchange rates. Purchases and sales of foreign investments and income and
expenses are converted into U.S. dollars based on currency exchange rates
prevailing on the respective dates of such transactions. Net realized and
unrealized gain (loss) on foreign currency transactions represent: (1)
foreign exchange gains and losses from the sale and holdings of foreign
currencies; (2) gains and losses between trade date and settlement date on
investment securities transactions and forward foreign currency exchange
contracts; and (3) gains and losses from the difference between amounts of
interest and dividends recorded and the amounts actually received.
In addition, the Funds do not isolate that portion of the results of
operation resulting from changes in exchange rates from the fluctuations
resulting from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
on investments.
(2) AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
The Managers Funds, L.P. (the Investment Manager) provides or oversees
investment advisory and management services to the Funds under Management
Agreements with each Fund. The Investment Manager selects portfolio managers
for each Fund (subject to Trustee approval), allocates assets among
portfolio managers and monitors the portfolio managers' investment programs
and results. Each Fund's investment portfolio is managed by portfolio
managers who serve pursuant to Portfolio Management Agreements with the
Investment Manager and the Fund. Certain trustees and officers of the
41
<PAGE>
- ---------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- ---------------------------------------------------------------------
Funds are officers of the Investment Manager.
Investment advisory and management fees are paid directly by each Fund to
The Managers Funds, L.P. based on average daily net assets. The annual
investment advisory and management fee rates, as a percentage of average
daily net assets for the year ended December 31, 1998, were as follows:
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT ADVISORY
FUND AND MANAGEMENT FEE
------ ------------------
<S> <C>
Income Equity 0.75%
Capital Appreciation 0.80%
Special Equity 0.90%
</TABLE>
The Trust has adopted an Administration and Shareholder Servicing Agreement.
The Managers Funds, L.P. serves as each Fund's administrator (the
Administrator) and is responsible for all aspects of managing the Funds'
operations, including administration and shareholder services to each Fund,
its shareholders, and certain institutions, such as bank trust departments,
broker-dealers and registered investment advisers, that advise or act as an
intermediary with the Funds' shareholders. During the year ended December
31, 1998, each of the Funds paid a fee to the Administrator at the rate of
0.25% per annum of the Fund's average daily net assets.
An aggregate annual fee of $10,000 is paid to each outside Trustee for
serving as a Trustee of the Trust. In addition, these Trustees receive
meeting fees of $750 for each in-person meeting attended, and $200 for
participation in any telephonic meetings. The Trustee fee expense shown in
the financial statements represents each Fund's allocated portion of the
total fees.
(3) PURCHASES ADN SALES OF SECURITIES
Purchases and sales of securities, excluding short-term securities, for the
year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
---- ---------- --------
<S> <C> <C>
Income Equity $ 55,986,175 $ 56,000,395
Capital Appreciation 179,272,417 196,803,194
Special Equity 720,698,689 491,823,995
</TABLE>
There were no purchases or sales of U.S. Government securities.
(4) PORTFOLIO SECURITIES LOANED
The Funds may participate in a securities lending program providing for the
lending of corporate bonds, equity and government securities to qualified
brokers. Collateral on all securities loaned except for government securities
loaned is accepted only in cash. Collateral on government securities loaned
is in the form of other similar securities. Collateral is maintained at a
minimum level of 100% of the market value, plus interest, if applicable, of
investments on loan. Collateral received in the form of cash is invested
temporarily in money market funds by the custodian. Earnings of such temporary
cash investments are divided between the custodian, as a fee for its services
under the program, and the Fund, according to agreed-upon rates.
42
<PAGE>
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NOTES TO FINANCIAL STATEMENTS (concluded)
- ---------------------------------------------------------------------------
(5) TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, the Income Equity, Capital
Appreciation and Special Equity Funds designates $ 6,093,069, $ 9,056,320 and
$1,103,595 as 20% capital gain distributions for its year ended
December 31, 1998.
As of December 31, 1998, Special Equity had an accumulated net realized capital
loss carryover from securities transactions for Federal income tax purposes
amounting to $ 22,747,256, expiring December 31, 2006.
- -----------------------------------------------------------------------------
SUBSEQUENT EVENTS (unaudited)
- ----------------------------------------------------------------------------
On January 29, 1999, The Managers Funds, L.P. (the Manager) and its
partners entered into an agreement (the Purchase Agreement) with
Affiliated Managers Group, Inc. (AMG). Under the Purchase Agreement, at
the closing, The Manager will convert into a Delaware limited liability
company (LLC) and AMG will acquire a 95% interest in its profits
and a 100% interest in the capital of the Manager with the remaining 5%
interest in the profits to be retained by certain key employees of the
Manager (the "Transaction"). AMG will become the managing member of the LLC.
AMG is a publicly-traded Delaware corporation that acquires and holds
interests in investment management firms. The Transaction is expected to
close on or about April 2, 1999, subject to various conditions.
At an in-person meeting held on January 13, 1999, the Board of Trustees of
The Managers Funds considered the proposed Transaction and approved a new
advisory agreement between each of the 10 funds comprising the Trust (other
than Managers Money Market Fund) and the LLC, new sub-advisory agreements and
other contracts with the LLC on the same terms as the existing contracts, and
to take effect upon effective date of the Transaction. The approval of the
advisory agreements with the LLC and of the Sub-Advisory Agreement on behalf
of Managers Capital Appreciation Fund and Essex Investment Management
Company, LLC (an affiliate of AMG) are subject to the approval by the
shareholders of the applicable Funds. A special meeting of shareholders will
be held to consider these matters before the proposed Transaction is
consummated. A proxy statement describing the matters to be considered will
be mailed to each shareholder in advance of the meeting.
43
<PAGE>
- ----------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- ----------------------------------------------------------------------------
To the Trustees of The Managers Funds and the Shareholders of Managers
Income Equity Fund, Managers Capital Appreciation Fund and Managers Special
Equity Fund:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of portfolio investments, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material aspects, the financial position of Managers
Income Equity Fund, Managers Capital Appreciation Fund and Managers Special
Equity Fund (three of the series constituting The Managers Funds, hereafter
referred to as the Funds) at December 31, 1998, and the results of each of
their operations, the changes in each of their net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as financial statements) are the responsibility of
the Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide
a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
44
<PAGE>
[BLANK PAGE}
<PAGE>
[LOGO}
WHERE LEADING MONEY MANAGERS CONVERGE
FUND DISTRIBUTOR
THE MANAGERS FUNDS, L.P.
40 Richards Avenue
Norwalk, Connecticut 06854-2325
(203) 857-5321 or (800) 835-3879
CUSTODIAN
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
LEGAL COUNSEL
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022
TRANSFER AGENT
Boston Financial Data Services, Inc.
attn: The Managers Funds
P.O. Box 8517
Boston, Massachusetts 02266-8517
(800) 252-0682
This report is prepared for the information of shareholders. It is authorized
for distribution to prospective investors only when preceded by an effective
prospectus.
THE MANAGERS FUNDS
EQUITY FUNDS:
- ------------
INCOME EQUITY FUND
Scudder Kemper Investments, Inc.
Chartwell Investment Partners, L.P.
CAPITAL APPRECIATION FUND
Essex Investment Management Co., Inc.
Roxbury Capital Management, LLC
SPECIAL EQUITY FUND
Liberty Investment Management
Pilgrim Baxter & Associates, Ltd.
Westport Asset Management, Inc.
Lazard Asset Management
INTERNATIONAL EQUITY FUND
Scudder, Kemper Investments, Inc.
Lazard Assed Management
EMERGING MARKETS EQUITY FUND
King Street Advisors, Limited
INCOME FUNDS:
- ------------
MONEY MARKET FUND
J.P. Morgan
SHORT AND INTERMEDIATE BOND FUND
Standish, Ayer & Wood, Inc.
INTERMEDIATE MORTGAGE FUND
Jennison Associates Capital Corp.
BOND FUND
Loomis, Sayles & Company, L.P.
GLOBAL BOND FUND
Rogge Global Partners
